Cash is the most important current asset for a business operation. It is the force that drivers business activities and also the ultimate output expected by the owners. The firm should keep sufficient cash at all times. Excessive cash will not contribute to the firm ‘s profits and storage of cash will disrupt its manufacturing operations the term ‘cash’ can be used in two senses in a narrow sense it means the currency and other cash equivalents such as cheques, drafts and demand deposits in banks.
In a broader sense it includes near cash assets like marketable securities and times deposits in banks. The distinguishing nature of this king of assets is that they can be converted into cash very quickly. Cash in its own form is an idle asset. Unless employed in some form or another, it does not earn any revenue.
Cash management is concerned with
Cash management tries to accomplish at a minimum cost the various tasks of the various tasks of cash collection, payment of outstanding s and arranging for deficit funding or surplus investment. It is very difficult to predict cash flow s accurately. Generally, there is no correlation between inflows and outflows s at some points of times, cash inflows. At some points of some points of time, cash inflows because of the seasonal nature of product sale thus prompting the firm to resort to borrowing and sometimes outflows may be lesser than inflows resulting in surplus cash. There is always an element of uncertainty about the inflows and outflows. The firm should therefore evolve strategies to manage cash in the best possible way. These can be broadly summarized as:
The ideal cash management system will depend on a number of issues like, firm’s product, competition, and collection program delay in payments availability of cash at low rates of interests and investment opportunities available.
This can be studied under two heads: (A) meeting payments schedule and (B) minimize funds committed tocash balances
In a broader sense it includes near cash assets like marketable securities and times deposits in banks. The distinguishing nature of this king of assets is that they can be converted into cash very quickly. Cash in its own form is an idle asset. Unless employed in some form or another, it does not earn any revenue.
Cash management is concerned with
(A) management of cash flow into and out of the firm,
(B) cashmanagement within the firm and
(C) management of cash balances held by the firm – deficit financing or investing surplus cash.
Cash management tries to accomplish at a minimum cost the various tasks of the various tasks of cash collection, payment of outstanding s and arranging for deficit funding or surplus investment. It is very difficult to predict cash flow s accurately. Generally, there is no correlation between inflows and outflows s at some points of times, cash inflows. At some points of some points of time, cash inflows because of the seasonal nature of product sale thus prompting the firm to resort to borrowing and sometimes outflows may be lesser than inflows resulting in surplus cash. There is always an element of uncertainty about the inflows and outflows. The firm should therefore evolve strategies to manage cash in the best possible way. These can be broadly summarized as:
Cash planning: cash flows should be appropriately planned to avoid excessive or shortage of cash.Cash budgets can be prepared to aid this activity.
Managing cash flows: the flow of cash should be properly managed steps to speed up cash collectionand inflows should be implemented while cash outflows should be slowed down.
Optimum cash level: the firm should decide on the appropriate level of cash balance. Balance should be stuck between excess cash and cash deficient stage.
Investing surplus cash: The surplus cash should be properly invested to earn profits. Many in very investment and avenues to invest surplus cash are available in the market such as bank short term deposits, T-bills, inter corporate lending etc.
The ideal cash management system will depend on a number of issues like, firm’s product, competition, and collection program delay in payments availability of cash at low rates of interests and investment opportunities available.
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