Downloaded 12 times
Uploaded bySt Mary's College,Thrissur,Kerala
B.Com-Cash Management
This document discusses cash management. It defines cash management as forecasting, collecting, disbursing, investing, and planning cash flows. The objectives of cash management are to meet cash outflows, minimize cash balances, prevent insolvency, maintain good creditor relations, ensure strong credit ratings, and take advantage of opportunities. Cash management techniques include cash budgeting, synchronizing cash flows, accelerating receipts through various methods, and delaying payments. Models discussed for cash management are William Baumol's economic order quantity model and Miller-Orr's stochastic cash management model.
In this document
Powered by AI
Introduction of Jinu Josy, Assistant Professor, and the topic of cash management.
Explains cash management as the forecasting and managing of cash inflows and outflows.
Lists objectives such as meeting cash outflows, minimizing cash balance, and maintaining good creditor relations.
Details the aspects of cash management including cash planning, managing flows, and investing cash.
Describes the cash budget's role in estimating cash needs and managing cash obligations effectively.
Highlights the various utilities of a cash budget including projections for cash requirements and external funding.
Introduces techniques such as synchronizing cash flows and accelerating cash receipts using banking methods.
Discusses strategies for delaying payments to optimize cash flow management.
Focuses on inventory management and reducing operational costs as part of cash management techniques.
Describes Baumol’s model for optimizing cash holding costs and transaction costs.
Introduces Miller-Orr’s model with control limits for cash balance management.
More Related Content
Similar to B.Com-Cash Management
More from St Mary's College,Thrissur,Kerala
B.Com-Cash Management
- 1. Cash Management Jinu Josy AssistantProfessor Department of Commerce St. Mary’s College Thrissur-680020 Kerala
- 2. Cash Management Meaning:Cash management refers to management of cash inflows and cash outflows. It is the process of forecasting, collecting, disbursing, investing and planning for the cash a company needs to operate its business smoothly. Cash Management, Jinu Josy,St.Mary’s College
- 3. Cash Management, JinuJosy,St.Mary’s College To meet cash outflows(payments) To minimize cash balance To prevent insolvency or bankruptcy To maintain a good relation with creditors, suppliers etc. To ensure strong credit rating To take advantage of favourable business opportunities. Cash Management :Objectives
- 4. Cash Planning Managingcash flows Managing optimum cash balance Investing cash Scope of Cash Management Cash Management, Jinu Josy,St.Mary’s College
- 5. The first stepin cash management is to estimate the requirement of cash in the firm. For this purpose, cash budget is to be prepared. A cash budget shows the cash inflows and outflows expected in a budget period and net effect of these flows on cash balances . The objective of preparing cash budget is to enable the management to meet its cash obligations as and when they fall due and to keep idle cash to minimum level. Cash Budget Cash Management, Jinu Josy,St.Mary’s College
- 6. It indicatethe effect on the cash position of various requirements It indicate the cash requirement for a plant, or equipment expansion programme. It points to the need for the additional funds from external sources. It indicate the availability of cash for taking advantage of discounts offered. It helps in planning redemption of preference shares, debentures, payment of pension etc. Utility of Cash Budget Cash Management, Jinu Josy,St.Mary’s College
- 7. Synchronizing cashflows The synchronization of cash flows provides cash when it is needed and thus enables firms to reduce their average cash balances. Accelerating Cash Receipts • Lock box system • Concentration banking • Automated clearing Houses • Zero balance accounts • Wholly owned collection centres • Pre- authorized cheques Techniques of Cash Management Cash Management, Jinu Josy,St.Mary’s College
- 8. Delaying Payments •Centralized cash payments • Avoidance of early payments • Payments through cheques • Float Management Techniques Continues… Cash Management, Jinu Josy,St.Mary’s College
- 9. Effective inventorymanagement Minimum operational cost Reducing the time span of production cycle Investment in marketable securities Techniques Continues… Cash Management, Jinu Josy,St.Mary’s College
- 10. William J.Baumol’s EOQ model This model is based on the proposition that inorder to reduce the holding cost that is interest foregone on investment of cash , a firm keeps the least amount of cash in hand. The cash is recovered by selling marketable securities in such a way that the transaction cost is optimally balanced with the holding cost of cash. C= 2A * F O C = Optimum cash balance A = Annual cash requirement F = Fixed conversion cost per transaction O = Opportunity cost of holding cash Cash management models Cash Management, Jinu Josy,St.Mary’s College
- 11. Miller –Orr Cash Management Model This is also known as stochastic model. Under this model, two control limits are set for cash balances. These limits consists of upper control limit (H) , beyond which cash balance need not be allowed to go , lower control limit(L), below which cash level is not allowed to reduce and the return point (R). Cash management models Cash Management, Jinu Josy,St.Mary’s College