CASH MANAGEMENT

CASH MANAGEMENT IS CONCERNED WITH:

• CASH FLOWS INTO AND OUT OF THE FIRM

• CASH FLOWS WITHIN THE FIRM

• CASH BALANCES HELD BY THE FIRM AT A POINT OF TIME

TO SMOOTHEN THE CASH MANAGEMENT THE FIRM MUST:

• EVOLVE & ESTABLISH A RELIABLE FORECASTING AND REPORTING

SYSTEM

• TO IMPROVE & STREAMLINE THE CASH COLLECTION AND PAYMENT

MECHANISM

• OPTIMUM SAVINGS & GAINFUL INVESTMENT OF SURPLUS CASH

RATIONALE FOR HOLDING CASH
THREE PRIMARY REASONS:

• TRANSACTIONS BALANCE
• PRECAUTIONARY BALANCE
• SPECULATIVE BALANCE
 SOME IMPORTANT ASPECTS
• CASH Vs. PROFIT

• CASH FLOW AND CASH STOCK

• CASH FLOW PRESENTATION – ACCOUNTING

STANDARDS (IASC – 1ST JAN., 1994)

- OPERRATING ACTIVITIES
- INVESTING ACTIVITIES
- FINANCING ACTIVITIES
Cash Flow from Operating Activities
Cash flow from Investing Activities
Cash Flow from Financing Activities
LIQUIDITY MANAGEMENT
• CASH (Pure Liquidity)

• MARKETABLE SECURITIES (Back-up- Liquidity)

- Expected ROI
- Construction of Portfolio

• CASH + MARKETABLE SECURITIES

 CASH MANAGEMENT TECHNIQUES
• CASH FLOW SYNCHRONISATION

• SPEED UP THE CHECK CLEARING PROCESS

• USING FLOAT

- DISBURSEMENT FLOAT
- COLLECTION FLOAT
- NET FLOAT

• ACCELERATION OF RECEIPT

- LOCKBOX PLAN
- PAYMENT BY WIRE OR AUTOMATIC DEBIT
 Sequential Actions to Arrest Liquidity Crises
• Utilize un-availed credit limits
• Sell marketable securities
• Negotiate spacing of repayment schedule of term liabilities
• Negotiate for enhancement of short-term credit facilities with the bank
• Defer payment of suppliers bills
• Advance buyers’ payment
• Reduce cash out flow
• Sell assets
• Refer to BFIR