Cash Management

Presented By:
Siddhartha Goyal
 Cash Management

Cash management refers to

management of cash balance
and the bank balance
including the short terms
deposits.
 Why do we require cash
management ?

1) To provide cash needed to meet the obligations.

2) To minimize the idle cash held by the firm.

Liquidity Vs Profitability

Liquidity:-
Liquidity refers to the ability to
transform a security into cash.

Profitability:
Profitability refers an earning which is
earned because of various business
activities.
 Cash vs. Profit
1) Sales and costs and, therefore, profits do not
necessarily coincide with their associated cash
inflows and outflows.

2) The net result is that cash receipts often lag

cash payments and, profits may be reported, the
business may experience a short-term cash
shortfall.

3) For this reason it is essential to forecast cash

flows as well as project likely profits
 Motives of Holding Cash :-
1) Transaction Motive :-
In order to meet the obligations for
cash flow arising in the normal course of
business, every firm maintains some
cash balance.

2) Precautionary Motive :-
The precautionary motive of cash
holding is based on the need to maintain
sufficient cash to act as a caution or
buffer against unexpected events.
3) Speculative Motive :-
Cash may be held for speculative
purposes in order to take advantage of
potential profit making situations.

4) Compensation Motive :-
In order to avail the convenience of
current account, the minimum cash balance
must be maintained by the firm and this
provides the compensation motive for
holding cash.