CASH MANAGEMENT


CASH MANAGEMENT

A company ability to allocate a funds efficiency in an effective way to cover operating expenses, make investment, repay shareholders and maintain adequate reserves

Four facts of Cash Management

1-      Cash planning
2-      Managing the cash flow
3-      Optimum cash level
4-      Investing surplus cash

MOTIVE OF HOLDING CASH

1-      Transaction motive
2-      Speculative motive
3-      Precautionary motive

TRANSACTION MOTIVE

Holding cash to meet the routine cash requirements to finance the transactions which a firm carries in the ordinary course of business
Cash is hold to pay for the goods or services. It is useful for the conducting our everyday transaction and purchase

PRECAUTIONARY MOTIVE

The cash balance is hold in the reserve for random and uniform fluctuation in cash flow. Cushion to meet unexpected needs like floods, strikes and failure of important customer. Unexpected shut down in collection of account receivable sharp increase in cost of raw materials cancellation of some order of goods. This is defensive in nature

SPECULATIVE MOTIVE

It a motive for holding cash for quickly take advantages of opportunities typically outside the normal course. This is positive and aggressive approach. It helps to take advantage in purchasing of raw material and in other opportunities to reduce the cost. It purchase at favorable prices. Delay purchase on anticipation of decline in prices. Buying securities when interest rate is expected to decline







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