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    Cash and Marketable Securities Management

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    shrutimathur14891802
    This document discusses cash and marketable securities management. It defines cash and notes there are two senses - narrow including coins, currency, checks etc. and broad including near-cash assets like securities and time deposits. It outlines the main motives for holding cash - transactional, precautionary, speculative, compensating. The objectives and importance of cash management are presented, focusing on meeting needs, minimizing idle funds, and maintaining good banking relationships. Methods for improving cash flow and types of marketable securities are also summarized. The cash budget is identified as the most important cash management tool to coordinate cash needs and arrange funding.

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    Cash and Marketable Securities Management

    Uploaded by

    shrutimathur14891802
    7K views17 pages
    This document discusses cash and marketable securities management. It defines cash and notes there are two senses - narrow including coins, currency, checks etc. and broad including near-cash assets like securities and time deposits. It outlines the main motives for holding cash - transactional, precautionary, speculative, compensating. The objectives and importance of cash management are presented, focusing on meeting needs, minimizing idle funds, and maintaining good banking relationships. Methods for improving cash flow and types of marketable securities are also summarized. The cash budget is identified as the most important cash management tool to coordinate cash needs and arrange funding.

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    This document discusses cash and marketable securities management. It defines cash and notes there are two senses - narrow including coins, currency, checks etc. and broad including near-cash assets like securities and time deposits. It outlines the main motives for holding cash - transactional, precautionary, speculative, compensating. The objectives and importance of cash management are presented, focusing on meeting needs, minimizing idle funds, and maintaining good banking relationships. Methods for improving cash flow and types of marketable securities are also summarized. The cash budget is identified as the most important cash management tool to coordinate cash needs and arrange funding.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    7K views17 pages

    Cash and Marketable Securities Management

    Uploaded by

    shrutimathur14891802
    This document discusses cash and marketable securities management. It defines cash and notes there are two senses - narrow including coins, currency, checks etc. and broad including near-cash assets like securities and time deposits. It outlines the main motives for holding cash - transactional, precautionary, speculative, compensating. The objectives and importance of cash management are presented, focusing on meeting needs, minimizing idle funds, and maintaining good banking relationships. Methods for improving cash flow and types of marketable securities are also summarized. The cash budget is identified as the most important cash management tool to coordinate cash needs and arrange funding.

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    The key takeaways are the different definitions of cash, the motives for holding cash such as transactional, precautionary, speculative and compensating motives, and the objectives and importance of cash management.

    The different motives for holding cash are transaction motive, precautionary motive, speculative motive and compensating motive.

    The objectives of cash management are to meet cash disbursement needs regularly, minimize idle cash balances, prevent bankruptcy, maintain good relations with banks and creditors/suppliers, lead a strong credit rating and meet unexpected cash expenditures.

    Cash and Marketable Securities

    Management
    Cash - A Definition

    In a narrow sense, cash includes coins,


    currency notes, cheques, bank drafts &
    demand deposits.

    In a broad sense, cash includes “near-cash


    assets” such as marketable securities & time
    deposits with banks.
    Motives For Holding Cash

     Transaction Motive:
    To meet cash needs that arise from doing business.

     Precautionary Motive:
    Having cash on hand for unexpected purposes.
    Motives For Holding Cash

     Speculative Motive:
    To take advantage of potential profit-making
    situations.

     Compensating Motive:
    To maintain a minimum balance of cash at
    banks to compensate for providing services &
    loans.
    Objectives of Cash Management

     To meet cash disbursement needs of the firm


    on a continuous & regular basis.

     To minimize funds in the form of cash balance


    which remains idle.

     To prevent bankruptcy

     Good relation with bank


    Objectives of Cash Management

     Good relation with trade creditors &


    suppliers.

     To lead strong credit rating

     To meet unexpected cash expenditure

     To maintain balance level


    Importance of Cash Management

     To maintain adequate cash balance

     Helps in identifying surplus cash & investing


    them in marketable securities.

     Helps in identifying the points of shortfalls &


    to plan & arrange adequate cash

     Improves the profitability of the firm


    Importance of Cash Management
     Keeps the bank overdraft limit under
    control

     Strike a balance between liquidity &


    profitability

     Make instant cash payments & avail of the


    facilities of cash discounts.

     To take advantage of speculative


    opportunities
    Cash Management Models

    Baumol’s Model

    Baumol suggested that cash may be


    managed in the same way as any other
    inventory & stated that the Economic
    Order Quantity (EOQ) could be applied to
    cash management.
    Cash Management Models

    Miller- Orr Model

    The Miller- Orr Model specifies the


    following 2 limits:
    d) Upper Control Limit (UCL)
    Marketable securities are sold
    f) Lower Control Limit (LCL)
    Marketable securities are bought
    Ways of Improving Cash Flow

     Increase sales (particularly cash sales)

     Reduce direct & indirect costs & overhead


    expenses

     Increase prices specially to slow payers

     Become more selective when granting credit

     Reduce the amount/time of credit given to


    customers
    Ways of Improving Cash Flow
     Improve systems for billing & collection

     Improve systems for paying suppliers

     Use the 80/20 rule to control inventories,


    receivables & payables

     Add late payment charges or fees where


    possible

     Use more pro-active collection techniques


    Marketable Securities
    Meaning:
    Marketable securities consist of
    investments that are both readily
    marketable & are expected to be converted
    into cash within a year.

    They should possess 2 basic characteristics:


     Ready market & safety of principal
     Little or no loss in the value over time.
    Types of Marketable Securities

     Term deposits with scheduled banks


     Treasury Bills
     Certificates of deposit
     Commercial papers
     Bill discounting
     Mutual Fund Scheme
     Municipal Bonds
     Inter-Corporate Deposits
    Cash Budget

     Cash Budget is the most important tool in cash


    management

     It is a device to help a firm to plan & control the


    use of cash

     Cash Budget may be prepared annually, half-


    yearly, quarterly, monthly, fortnightly, weekly or
    even on a daily basis
    Purpose of Cash Budget
     To co-ordinate the timings of cash needs

     It pinpoints the period when there is likely to be


    excess cash

     It enables a firm to take advantage of excess cash


    available

     It helps to arrange needed funds on the most


    favorable terms
    Thank You….

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