 Cash is one of the current assets of a business. It is needed all time to keep a business going because shortage of cash will hamper the operations of a concern & excess of it will be unproductive.  For some person cash means only money in the form of currency(cash in hand).  For other, cash means both cash in hand & cash at bank.  For some other it is cash in hand, cash at bank & near cash assets & marketable securities which can be easily convertible in to cash

TO MEET DAY TO DAY OPERATIONS. TIME LAG BETWEEM RECIEPTS & PAYMENTS INVESTMENTS IN MARKETABLES SECURITIES TRANSACTION MOTIVES TO MEET VARIOUS CONTIGENCIES VARIATION S IN ESTIMATIONS FOR EMERGENCY TRANSACTIONS PRECAUTIONARY MOTIVES FOR AVAILING PROFITABLES OPPORTUNTIES FOR AVAILING DISCOUNT TO TACKLE WITH THE SUDDEN RISE IN PRICE SPECULATIVE MOTIVES

1. Conversion of cash into inventory 2. Conversion of inventory into Receivables 3. Conversion of Receivables into Cash

Receivable s Inventory Cash Phase 1 Phase 2 Phase 3

 Cash management has assumed importance because it is the most significant of all the current assets. Cash management deals with the following Cash inflows &outflows Cash flows within the firm Cash balances held by the firm at a point of time.

A. Cash planning B. Cash forecasts & budgeting (1) receipts & disbursements method (2) adjusted net income method

8  The effective planning, monitoring and management of liquid / near liquid resources including: Day-to-day cash control Money at the bank Receipts Payments S-T investments and borrowings

9 BANKER’S PERSPECTIVE

10  The effective planning, monitoring and management of liquid / near liquid resources including: Provision of bank accounts Deposit / withdrawal facilities Provision of information regarding bank accounts and positions Money transfers and collection services Investment facilities Financing facilities Pooling and netting

11 Managing Liquidity Source: Essentials of Managing Corporate Cash

12  We need to consider control in all areas of working capital to maximise return, reduce cost.  Some areas are not controlled by the Finance Function – Stock/inventory  Some areas have shared control – payables and receivables  Some areas are controlled by the Finance Function – short term borrowing and investment

METHODS OF ACCELERATING CASH INFLOWS METHODS OF SLOWING CASH OUTFLOWS  PROMPT PAYMENTS BY CUTOMERS  QUICK CONVERSION OF PAYMENT IN TO CASH  DECENTRALISED COLLECTIONS  LOCK BOX SYSTEM  PAYING ON LAST DATE  PAYMENTS THROUGH DRAFTS  ADJUSTING PAYROLL FUNDS  CENTRALISATION OF PAYMENTS  INTER BANK TRANSFER  MAKING USE OF FLOAT

14 Any delay in the process of converting materials and labour to receipt of payment involves cost, float cost.  Similarly, any delay in making payments will also give rise to float but this time to our advantage  Definition of float The time lost between a payer making a payment and a beneficiary receiving value  Cost of Float principle amount due x no of days x cost of funds 360 or 365

1. CASH BUDGET 2. CASH MANAGEMENT MODELS (A) WILLIAM J. BAUMOL’S MODEL (B) MILLER & APPROACHES TO DETERMINE OPTIMAL CASH BALANCE

Formulas for three time periods are necessary to calculate the cash conversion cycle.

TREASURY BILLS NEGOTIABLE CERTIFICATES OF DEPOSITS READY FORWARDS BADLA FINANCING INTER- CORPORATE DEPOSITS BILL DISCOUNTING INVESTMENT IN MARKETABLES SECURITIES MONEY MARKET MUTUAL FUNDS

MANAGEMENT OF MARKETABLES SECURITIES SAFTY MATURITY LIQUIDITY & MARKET- ABILITY RETURN OR YEILD