What is the concept of Six Sigma Finance?

What is the concept of Six Sigma Finance?

The introduction to six sigma, and then we would be talking about the normal distribution curve and the related values which would make you understand a little bit better,

Where the six sigma comes from, then the six sigma and its related importance in the field of finance how you could correct the boat, then various methodologies being used in this process,

The organization structure which is created and the benefits that are reaped after implementation of six sigma in the business, then analytical tools being used under this.

Let's move forward to our first content, slide, which is an introduction to six sigma what do you understand by sigma, you must have read in the statistic that sigma indicates deviation from your mean level.

Exactly that Here we are talking about, we are talking about deviation in terms of errors being occurred in terms of defects being occurred, if you are manufacturing any product, or if your processes are inefficient.

Six sigma works with the help of a set of techniques and tools, which would help in improving the overall quality, which would help in improving the overall quality and how it will do that, it will do that by eliminating by reducing the.

To make a continuous improvement six sigma concepts are covered under total quality management,

This ensures a continuous evaluation to figure out the customer-centered preferences, which then is worked with an integrated process to do the continuous improvement and in turn, increasing the quality of the product or the man,

Or the services being rendered, and thus bringing efficiency to your company to your business. The importance of six sigma is that it ensures 99.99966% of accuracy in the output.

If you are producing 1 million subprojects in a year, you are. This, the importance of six sigma is that it ensures 99.99966% of accuracy in the output.

If you are producing one million products in a year. You are allowed the six sigma would allow only 3.4 defects out there.

This is the accuracy level we are talking about when you are doing a business because the accuracy level would still help you in bringing quality to your product.

This would create consistency and this would satisfy the customer in terms it would bring a reputation for your company and would increase the revenue and the market share of your business.

Well, seeing that the importance of six sigma we can, we can figure out that these projects are led by individuals who are specially trained, who especially feel equipped with the application of this method.

Just have a look at the normal distribution curve from here you would get to know what to expect, is indicating,

We have read this before also that sigma indicates deviation from the main level, where mine was negative funds sigma to the positive one sigma is indicating the 68% of deviation.

In a similar way from if we are considering negative six sigma to positive six sigma, it is, it would be covering about 99.999666% of the accuracy level.

See, here you can have a look at the related values the defect status allowed, and the accuracy level.

When we talked about one sigma level that is from a negative one to a positive one sigma. It allows about 268 68.27% of accuracy,

Why because 1 million products would be having a defect of about three lakh 17,300 parts per million.

Now after comparing one sigma to six sigma you can observe that six sigma allows only 3.4 defect parts per million.

As I already told it indicates that if you're manufacturing 1 million of products. Only 3.4 defects would be there in the product.

Arrest all will be accurate rest all would be consistent and up to the quality marks. Fixing mind finance you must be thinking that six sigma is related to process improvement, it is related to bringing out efficiency in the business.

How it is related to finance, you can figure out various benefits, which it would be producing in the final speed,

How it helps in reducing the cost by improving the efficiency level one when you talk about finance you talk about two major aspects that are reducing the cost and maximizing the revenue,

Because the difference between both differences between the booth would bring out the profitability for you.

Six sigma helps in reducing the cost, it would help in figuring out what are the processes which are taking which are maximizing your cost level and they are inefficient,

They are nonvalue adding so it would work on removing those nonvalue adding processes to minimize the cost and does it would bring efficiency and would put an impact on your revenue levels that you can generate profit out there,

You can generate profit in a way also that you are meeting the customer's demand you're providing quality products.

Your customers are satisfied your customers would come back to you to purchase the products because they are dependent.

They are gaining that trust in your product now to make six sigma successful in financial management, it should be guided through a quantitative approach to measure

The KPIs rather than the qualitative approach. If we are talking in terms of finance, we figure out to have some key performance indicators that are the revenue the cost,

The profit and the market share the market value, all these things, we will try to implement our six sigma process, and then we will try to measure it in terms of quantity,

Like the numbers which we are gaining the increased percentage, the ratio, we will talk in these terms rather than talking in qualitative terms, then only the implementation of six sigma in financial terms would be useful.

It acts as a simulation and financial decisions. Six Sigma provides you with so much information about the causes the effects that are being occurred because of those causes.

You could make better financial decisions if you are all. If you are all well aware of aware about the defects being occurred defects being occurred in the process you are working on eliminating that,

You can take better financial decisions as to where to control the cost to how to increase the revenue, how to make the business profitable.

It also reduces financial risk and helps you keep control over your spending. It reduces the auditing invoicing and documentation errors.

As you know, six sigma works on quality improvement so quality could be improved in any terms in any terms that ensure that you are having control over the measures you are keeping track of whatever you are doing

That you would be able to realize how to, how to improve what you are doing, how to improve the overall process how to improve to gain some percentage of revenue to increase the level of revenue in the business.

Now the six sigma methodology six sigma works on the methodology of demarking that are defining measuring analyzing improving and then keeping control over that.

What is defined means it denotes the identification of customers' needs and defining the expectations and priorities, based on the quality of the product.

First of all, when you are implementing this process what is the what it does is it tried to identify what customers want in the market.

And are you able to do that? Are you able to meet that demand if you are not able to meet that demand? What variations are occurring?

It also involves the identification of a business objective, where your objective is matching with customers' objective.

And if we are implementing six sigma, how to make, how to achieve that objective more of this.

It starts with defining all these measures and then we go to measure it denotes measuring of the existing process.

First, it has defined its objective to be achieved its expectations from the customer's expectations from the business.

Now it measures the existing process, the existing process that is being used, and it tries to figure out whether the process is lacking, whether the process is lacking something which is raising the inefficiency level in the business.

Then it analyzes, analyzes, analysis parties with figuring out the causes of defects the causes of errors, why those causes are occurring, and if it's the causes.

Just think of it if we can identify the causes we could work on the record work on that causes and try to remove that

Six Sigma follows the same manner, it figured out various causes of defects and then tries to eliminate that removing it and what steps to be taken to remove the defects.

To remove the defects and improve the performance of the system six sigma works on involving many steps to be followed to improve the performance consistently by removing the errors by removing the defects.

It helps in keeping control over the improvements are one. Once all these things, all these things have been done.

You also have to maintain that so in further when you are producing any other product when you are, again, rendering the service you don't feel the same problem and again you don't have to implement six sigma.

It works on ensuring control on maintaining the improvements throughout the level. Six sigma organization structure. There are various aspects we will see one by one.

The quality leader is that these are the executives of managers who guide the direction of six sigma professionals in the direction of organizations objective.

These are the people involved in the implementation of the six sigma project in your business. One there would be a quality leader,

That would be the manager or the top-level executives of the business who would define that see our organization want to achieve this, and this is the expectation from our customer.

Now, how you could implement six sigma to make us achieve this more efficiently to make our customers satisfied to improve the quality of products.

Quality leaders, what do they do, they specify their objectives to be achieved. Then some people are known as a master black belt.

These are the six sigma professionals trained in. Six Sigma tools and techniques for process improvement.

They are having in-depth knowledge of what six sigma is what are the various processes involved, how to implement them in various scenarios.

Master black belt professionals are involved in taking strategic decisions. They are involved in making strategies to implement six sigma at various levels,

And then turning out to bring some efficiency in the business. We also are responsible for training the black belt and the green belt members, like Beth Israel, at a lower level than the master black belt.

These are the professional books, professional workers that lead the projects on quality improvement if any project is being carried out to maintain the quality to improve the quality level

These black belt people would lead that project they would train and they would train and provide coaching to the other team members because they are also having quite a relevant knowledge about six sigma's implementation process.

Then there are greenbelt professionals who assist in completing the project by doing data analysis.

Then there are yellow belt professional who is provided on completion of the basic foundational course on six sigma

These are having a basic knowledge of six sigma, how it works, and how, what are the terms related how to implement that they're very basic, very foundational knowledge about it.

You can see like, it is going from top-down a the top-down approach, the one the quality leader sets the objective and there is a master black belt who is having in-depth knowledge as,

Who is responsible for controlling the overall process then there is a black belt, who works under the master black belts and they work on sorted projects,

And there are greenbelt professionals who have seen, who helps them who helps in assisting the project.

And there are yellow belt people who are somewhat involved because they know a basic foundation on this. This is how the organization structure if we are using six sigma, goes about.

Now the benefits of six sigma. Now you must have been aware of all the benefits so just let me give a gist of all these,

It helps in improving the quality of the product with minimal defects, right at all. It helps in removing the defects so if the defects are being removed there your process would be improved,

And thus your cycle time would be less. The cycle time is the time from the beginning to the end. That is from right from the suppliers to the customers.

Right from the product being manufactured to the product being sold in the market so that is the cycle time being involved.

It helps in reducing that cycle time how it would reduce because it would bring efficiency in the process, it would remove the nonvalue adding activities.

Does it would do to bring profit will bring productivity to the company and in turn would bring profitability,

It would help in increasing customer satisfaction because six sigma works on quality, and if the quality is the better customer would be satisfied.

And if the quality is consistent like you are consistently making that quality at that level of accuracy.

You would keep somewhat customer equity, which means that the customer would be attached to you for a longer period. Gain reputation for reliable product and services, obviously,

You would do your company or business would be gaining some reputation because you are providing a good quality product,

And thus you will gain some competitive advantage when it comes to your competitors you are performing better you are performing at a higher accuracy level.

Now the analytical tools used in six sigma. Some of the analytical tools used in six sigma are flowcharts run charts Pareto charts,

Check sheets, cause and effect diagram process control charts, and failure mode and effect analysis. 

Flowcharts depict the whole process that involves right from the supplier to the customer. It helps in analyzing the process from input to output defining each stage involved.

A flowchart is created to figure out every activity involved in that process right from where you are obtaining the raw material for your business,

Till it is being manufactured and supplied to the customer, you are observing this chart is helping you observe all the processes so that you can analyze and figure out whether taking the most time. There it is.

There are other activities which are not, which are not adding much value to your process, and then there come the run charts,

These charts are used to observe the data patterns to figure out the trend. It does help in making predictions.

Run charts will be used to observe the data patterns from the previous data you can analyze some figures some patterns some trend line going.

And as you can take decisions and make predictions according to that. Run charts are being used in six sigma to help you identify the data patterns and figured out what could be done,

What could be done to make the predictions and what could be done according to those predictions to bring that efficiency?

And there are Pareto charts, these charts are based on the Pareto principle. What is Pareto's principle says shows that about 80% of problems occur due to 20% of causes?

These charts help us to figure out if we are having 80% of defects, what are the main causes of that defect.

Working on working on those causes to remove those causes so that we can gain 80% of accuracy at the same time by removing only 20% of causes.

This works on that principle. For example, you can see like 80% of customer complaints are due to bad quality of the product so we could work on improving the quality of the product.

At the same time, we would be able to satisfy about 80% of our customers. And there are checks sheets, check sheets help and systematically collect and store data,

How this is used, is done by using the tally or frequency distribution to keep a check on the data you are collecting and storing to help you out with that data and not get confused while you are,

While you are going through your process of manufacturing, then there is cause and effect diagram diagrams are used which shows various causes and related effects so that you can figure out which causes are,

Which causes are providing a strong effect on the product quality or the service, and then you can work on those causes

And try to remove that process control charts, these are the time sequence chart to keep control over the activities completion time in the project.

The process control charts depict you, what would be the time involved in doing one activity see the overall process is combined with many activities right

From the right from ordering the raw material to the procurement of raw material to put it in the manufacturing process which would be,

In turn, covering many dependent activities, and then getting to the packaging level the delivery the providing of services to the customers.

All these processes how much time should be involved in all those activities, and if the time. If the time is.

If the time is getting over from the standard level you must keep control over that. You must keep control to keep control over time  

That you don't miss out on the efficiency level of your process. Failure mode and effect analysis is the analysis process trying to figure out what would be the impact level for various failures.

If the failure is happening in the project if some errors are occurring what would be the impact if in practice getting very serious you must work on that failure first,

Guys, in this video, recovered. All about six sigma its importance its benefit, what does it means

And then we had a look at the various analytical tools used in it, the various methodologies, how statistically six sigma is related, and what are its benefits in the finance field.

What is risk in corporate finance? And Return

What is risk in corporate finance? And Return
What is risk in corporate finance? And Return 

What is the basics of corporate finance, is it protections between the corporations and investors for the trading of financial assets.

Now corporations when they need generating funds, they're having several options and they are like,

They have to choose between one optimal choice, where the source of where the cost of raising those funds would be the minimum.

Either they could go for banks to borrow or they could issue shares to the public to generate that much amount of funds.

Their requirement for how much fun they want. At what period they want, and the cost involved in generating that fund, all these three things would form a basis of where they should go for it.

If the corporations are like going to public and they are selling their securities they are selling the financial assets to generate funds from there,

Because the public, in a sense would be purchasing those securities and would be paying that amount that is involved in the purchase of that securities.

This is how the trade would take place, and the corporations would be able to get the funds and the public would then expect a return out of it.

What exactly the corporations would then do they would try to, they will try to put those funds in the best possible manner in the business to generate returns out of there to make their investors satisfied with the, with the expected returns from the business.

Let's have a quick look selling of securities like equity, debt commercial paper is all the ways through which a corporation tries to generate from the investor so in corporations are having many options they could sell the securities,

Like equity that commercial paper to generate funds out there. What are the corporation's perspective and all these things they do to meet the financing requirement and lowest possible cost,

They would always want to have a source to generate funds, where the cost involved is less because the cost involved is less,

They would be satisfied enough to work for it and to gain maximum returns I think it's underrated funds and best possible investment projects to acquire beneficial business returns from there,

They then try to put all these investments in. They then try to put all these funds in the best possible investment projects for their business.

That returns could be availed and the share of those returns could be passed on to the public who invested in those securities, this business returns need to be greater than the cost of raising funds.

The cost, there is always a cost involved when you are trying to raise the funds; you need to follow some procedure you need to do some documentation and all.

The cost involved in generating the fund should be lesser than the returns which we get after investing that fund in some projects in some businesses and some investment eras where we wanted to concentrate.

And what are the investor’s perspective and all that investors perspective is like analyzing the risk involved, and the return?

That they can make a perfect balanced decision Like if they're taking a higher risk, obviously they would expect a higher return because they are going.

Generally, the public is risk-averse they don't like to take the risk, but, in expectation of some higher benefits, they are ready to take that risk their expectation of the return would be higher.

This is what investor’s perspective they always try to balance the amount of risk they can take and the amount of return, they would expect in a certain period.

Let's have a look what the corporations, it is just a summary of whatever we return now corporations will try to ensure maximization of shareholders' and investors' wealth by making sound investment decisions after analyzing the market trends.

What corporations do they send the rates fund; they didn't raise funds from which they can raise funds from investors,

Corporate finance and these investors would try to make a balanced decision based on risk and watch and return patterns from the purchase of a particular financial asset.

They would try to figure out the trend the pattern which the asset was providing as a return so that they can expect in this amount of in this period what returns,

Can I expect and how much risk is involved. And how does this takes a place for corporations to sell securities to the investors provide funds by buying those securities?

Let's have a look at the risk and return, are a very simple overview of risk is future uncertainties that may lead to variability in the actual return when compared with the expected return.

Every time, either we talk from the perspective of the corporations who are making an investment or the public who are purchasing some assets as a part of their investment.

There is always some risk involved and why is that risk involved that is because the future is uncertain.

You can't predict the future but you can, you can't predict the future so always your risk is there like your money is being put into certain projects is being put into certain businesses that may get into loss if that doesn't work.

We can form strategies we can make analysis but is there a 100% probability of being successful in any project.

It's not there so this is where the risk comes into the picture. When you expect certain returns, and that return is deviating from the tax return is deviating from the actual sorry the actual return is deviating from that expected return.

That deviation is the risk. You don't want many deviations. If you are expecting a 70% return out of your investment and the deviation is about 20% and you're getting only 50% so that 20% is the risk involved,

And you don't want that because you want the profit level which you expected. Out of, because you took certain risks are they making you provided fun to the corporations?

The objective of making a sound financial decision is not to eliminate the risk but to measure it and determine whether the risk we are in would be useful when compared with the expected return.

Risk cannot be eliminated. This is rubbish. If someone says that we are eliminating the risk there is 0% risk involved in it.

There is always a risk, there is always an uncertainty about what we need to do, we need to measure whether that risk peering is useful enough and the return which we are expecting.

If we are expecting a higher return then we are ready to take the higher risk, but why would we take the higher risk if we are getting a very lower return, you're not ready to go for that.

What is corporate finance returned is the outcome of investment made in purchasing the securities. Return is anything,

Return is anything that you get out of by putting some cost into something; you put some cost in doing any project in running the business and making any investment proposals.

Whatever benefit you get out there and form of profit or the cash flows. Those all benefits together form the return, and it can be done and, and it can turn out to be loss also depending upon the market scenario if the price falls.

And if your business doesn't go well, or you are going into a bad market a scenario where the depression is going on corporate finance

All these things could also lead to losses, which are also a return for you, but that something you are losing rather than gaining.

Now the expected return is higher with higher risk associated and vice versa as I told if you're expecting a higher return you are ready to take a higher risk but if you're not getting a good return why would you go for a higher risk in that.

This time, have a look at this risk and return a correlation is trying to figure out. We have taken like three denominations the fixed deposits the bonds and the shares,

As you all are well aware the shares. You expect a higher return from the shares because of the risk involved in the highest and the shares.

And then comes to the government bonds where the risk is moderate and thus you can expect a moderate return out there.

And then the fixed deposits in the banks where the risk involved is very less and less you can expect a lesser return a fixed rate of return,

Which is, which may not be so much exciting for many people who wanted a good deal of benefit and a shorter period,

But here the people who are risk-averse and don't want to take much risk but wanted continuous growth in their money could go for that.

Risk can return a correlation as the return is going up the risk is also raising and as it comes down the risk. The risk is also decreasing.

Now, corporate finance the ways to calculate risk and return this is not theoretical-we would be figuring out the ways to calculate how we can calculate the risk associated

How can we calculate the return associated, and then we can make a comparison to choose, in which security we want to invest or in which portfolio as a group of securities in which we would like to invest?

We will be looking at the ways of calculating return as periodic return the arithmetic mean return and geometric mean return file to measure the risk we would go for standard deviation and peter

What do you mean by the financial market?

What do you mean by the financial market?
What do you mean by the financial market?

In the introduction to the financial market, we will be covering the types of the financial market very in detail, we will talk about the money market and the various instruments involved in money market-like

The call money, the commercial papers, the treasury bills, and the certificate of deposits moving on to our first content slide is the introduction to a financial market,

I would like to explain it in a manner like what do you understand by the market is any a place to facilitate exchange whether you want to buy something,

Whether you want to sell something, you are having a common denomination of money for that, which is facilitating that exchange process.

A financial market is a very similar financial market here you are involved in trading of financial assets, like equities, bonds,

The currencies, you are exchanging these things to earn some profit out of it to gain some value out of it, the financial market helps in establishing the price of financial assets.

As you know, there are various financial assets and all are having their price, how this price is determined,

This price is determined by the presence of the forces of demand and supply; you must have read it economists also like the demand and the supply forces give rise to the price determination of that particular product in the market.

In the same, way in the financial market investors are there than at the same time borrowers are there who are involved in the selling and buying of those financial assets. And that gives rise to the price determination.

It provides liquidity to financial assets as they could be negotiated and transferred. So, you must have heard like I am selling my shares or I want to buy that share or I'm selling this bond,

I wanted to buy this after a certain period. What is this show; it shows like these instruments are negotiable,

These instruments are transferable you can transfer them from one person to another at different time origins whenever you feel like whatever is the maturity period of the related financial assets,

It could be a shorter period, it could be a longer period, and it helps you in saving the cost of transactions.

The cost of the transaction involves various costs like the cost and searching for that asset in gathering information about that asset, the time involved in locating the customer,

Just think of it now, you want to buy any product, you just go to the shop and you know that the product would be available there you just purchase it out from there,

But what if there is no presence of the market there are no shops which you are aware of what you would do, you would search for that product which you wanted to purchase you would search for the shop where you can get that from it would involve a lot of time like you would be moving from one place to another and searching for that.

This is what the financial market facilitates it provides your platform necessarily doesn't mean it's the physical location; it could be an online process also.

It is providing you a platform to make the exchange processes and that exchange the process with various financial assets. 

Whether you are invested in whether you are interested in investing in bonds, whether you are interested in investing in commodity or currencies or equity whatever is there.

You can be a part of this financial market. Does it act as a pool between savers investors and borrowers just take an example of a bank what does the bank do?

Bank takes you're money because you're having extra savings. You deposit that into the bank, what does the bank do then it keeps a certain percentage of the amount

As a cash reserve ratio which is mandatory by the RBI rest of the market would invest somewhere in the corporates the other financial institutions or to other commercial banks.

From there it would earn some interest rates and who are that who are taking the money they are termed as the borrowers they would act as a borrower was at that particular period,

They would be paying a certain interest rate on that and this interest rate would be again paid to the customers who had deposited their money to the banks. Obviously,

There would be differences in the margins because that is what the income for various parties involved in that market.

Does it is acting as a pool between us investors and borrowers? It involves various parties like governments, banks, financial institutions, insurance companies, mutual funds, corporates, and all the parties

All the parties together form this financial market because they are involved in the exchange process of the financial assets.

The markets or finance that is the money market, the capital markets the Forex market, the derivatives market, and the commodity market.

What is the money market means money market facilitates the trading of financial assets the short term maturities like you wanted to invest or you wanted to buy the assets for a shorter period,

So, whenever you are in requirement of the cash or whenever you are in requirement for the funds, you can just sell that asset and get that amount instantly.

Many markets have seen that the capital market is trading in long term securities for a long period, which is further divided into the stock market

And bond a market where the stock market helps you in dealing with equity trading. As you know equity involves higher risk and does give you higher returns while the bond market deals with bond trading where it involves

A moderately lower risk than equity and it gives you a lower return than the equity market then there is the forex market, the Forex markets help you in making

The exchange process the buying and selling and speculating on currencies as you know the value of currencies also keeps on fluctuating.

You can trade on that you can trade on currencies to gain some profit out of there. Now, forex trading is generally done in currency pairs like the US dollar and Indian rupee or euro

And Indian rupee you can exchange when in that process you are paying some amount of Indian rupee to gain some US dollars and then you are speculating on the value of that dollar to get increased after a certain period.

This is what the forex market facilitates, the derivatives market is the financial market for derivatives, and various futures contracts are involved over there,

Like in today's period you are making that you're agreeing to purchase an asset with an expectation that the value of it would rise in a certain period

And the future, whether the value would rise or would fall, would depend totally upon you because you are making contracts at this period.

This is what the market is it derives its value from the underlying assets, it could be anything it could be query it could be a currency, it could be any commodity also or a simple negotiable bill also

The commodity market helps you trading and primary products like agricultural products, the gold mines oil,

You know the value of oils minds and goals is these values could make you very profitable if you are good at speculating on these values.

Commodity the market helps you in facilitating and exchanging with these products let’s go-to money market and talk something about that as I already told money market helps you

But let's see what happens right now the regulator is the controller is in the hands of RBI the money market helps industries secure short term loans

To meet their working capital requirement through the short term finance those are commercial papers, it has an earning income along with liquidity maintenance.

When you need instant funds when the banks when the cooperate need instant funds to meet the requirements

Of their working capital to meet various other requirements what they do, they, they trade-in money market because the maturity period is less you can instantly get the money,

You can get the money back with a rising rate of interest within a few days or a few months or up to one year.

Whatever the period is there whatever the requirement you're having depending Got that it has an earning income along with liquidity maintenance

About various instruments of the money market let's see what call money is. Called money is the method by which commercial banks borrow from each other to maintain

The cash reserve ratio is fixed by ratio. And the interest rate paid on call money is termed as call rate; the recent call rate is between 6.5 to 7%.

Called money is the trading or exchange process being facilitated in two of the commercial banks, where one bank needs the funds while the other bank is ready to give those funds,

But will be charging a certain interest rate from the other bank. This is what happens if you are certain if you are getting a shortage of funds,

You are in certain need to maintain your obligations, then what you would do you would go to another bank and you would ask for that amount of funds and if the bank is ready

To give you that fund, they would be charging a certain interest rate that is what we call the call rate and the recent call rate is between 6.5 to 7%.

Now, this call when the maturity is very shorter, it is for one to two days. So, you can think of it like it's an urgent requirement or an urgent requirement of the instant fund by the bank which is met by the another bank

Talking about the Treasury bill, it is issued by RBI on behalf of the government to cover the deficit balance or to control the money supply in the market.

Comment could also go in a deficit budget. As you know, the expenditure various expenditures are budgeted and then there is a mod by which the government is having the revenue

Which is generated through tax and other sources now, if the government is going out of budget and it wants to meet its expenditure, what it would do,

It would try to get money out of it would try to make money out of there. So, it would be issuing certain bills which are known as treasury bills,

It is also done to control the money supply in the market if the government feels like a lot of money supply is being done in the market,

Is giving rise to the question it will try to control that money supply from the market for this reason, it would do it would provide certain treasury bills

Which would be bought by the which were bought by various institutions the public and that would help in controlling the money

Supply in the market because they would be providing their money to the government by purchasing those bills.

What is the feature of this it is issued at discount and repayable at par value? So, just think of it like the value is 500 the value of the bar of the bill is 500.

Now, you would be paying only say 450 for that bill, and then after the maturity period, he would be getting 500. So, it is being issued at a discounted value and you would be getting the actual value at maturity.

For this reason, it is also referred to as zero-coupon bonds; it is negotiable and freely transferable. So, you can transfer your bills and the value would remain the same you can then sell it and you can then redeem it and get that amount of money.

It is generally issued in three types that are 91 days, 182 days, and 364 days till t bills these days are showing the maturity period, you can have the maturity period of 91 182 or 364 days depending upon your requirement.

And then the return which you get is about six to 7% from these tables. Coming to the commercial papers, it is an unsecured promissory note unsecured because it is issued by corporates to generate fund

Now corporates are in requirement of funds to meet there to meet their investing activities to meet their projects and which they thought of investing

But they're running out of budget what they would do, would issue commercial papers with a maturity period of up to 12 months.

They can do it either directly through the either directly or also through the banks. What happens because it is issued by the corporates and it is a little riskier because it is for a shorter period?

Generally, the public doesn't go for commercial papers most of the banks and financial institutions purchase these promissory notes and provide funds.

What corporations do in return they provide certain interest rates to the banks for providing funds and for providing funds when it was required?

Then there is a Certificate of deposits banks issued these certificates are a document of title to the depositors who deposit

Their money for a longer period And these are mostly the companies now again this transaction is between the banks and the corporates.

Some corporates are having extra surplus funds and they wanted to invest them into the bank to keep that fund saved.

To keep that fund as a deposit, what bank in return would give, it would provide a certificate of deposit that certificate would provide

 The enlightenment the certificate would provide the entitlement to the banks that they have made that deposit and them would be getting a certain return out of it.

Normally it is issued in multiples of one lakhs and the maturity period lies up to 12 months.

cash management objectives

cash management objectives
cash management objectives

Meaning of cash management, we can easily divide it into simpler words that is cash and management.

The first one is cash. Now when we talk about cash in business it is not just points and notes.

It contains other cash-related instruments that can be readily available to get converted into cash; it can be a current account saving account for the deposits that are maintained in the bank.

It can be liquid assets that are also referred to as money market instruments like treasury bills like commercial papers certificates of deposits etc. It can be checked. 

In any form. Those liquid assets or bank deposits, or current fees, all those are treated as cash in the business. And when we talk about management,

We know that management means planning, organizing efficiently allocating, and then reviewing. In terms of cash management, then this whole management functions like what we,

What we talked about planning, organizing efficiently allocating, and then reviewing the whole cash balance situation in any business that is referred to as cash management.

If you want a simpler definition, you can call it optimum utilization of cash to ensure liquidity and profitability of the business

Liquidity means that you are maintaining enough cash balance to meet transactional needs.

Also, you have to maintain the profitability and we will see how cash management also deals with the profitability of the business.

It is concerned with the collection disbursement and investment of cash inefficient manner. 

When we are talking about cash there are different aspects of cash. First, we need to collect the cash from our debtor's account receivables we need to disperse the cash,

Cash in the form of salary wages to creditors. And then we need to invest the cash and short term securities that we do not miss on any business opportunity and can aim for maximum profitability of the business.

This is what the whole idea of cash management is. And now let's see motives for holding cash. 

You would get this question as an important one. What are your motives, why any business holds on to cash? first this transaction motive.

Now transaction motive means cash is required in any business to meet operational expenses. Okay, these expenses could be like paying your bills related to renting, electricity,

It can be payment of salaries wages, it can be various other expenses related to transportations repair and maintenance accounting expenses.

These are all operational expenses which we also refer to as transactional expenses in any business, and the transaction needs of cash can be anticipated, 

We can anticipate what bills need to be paid next month. Well, how much a month should go in salary and wages from what could be the repairs and maintenance of

What accounting expenses could be anticipated can be calculated.

Transaction motive or coding cash we can determine what would be the optimum amount of cash balance to meet these transactional expenses.

Now, the second if precautionary motive, other than meeting all the transactions,

We know that the first motive is to meet all the transactional expenses. The second is precautionary anytime; certain unexpected situations may come from the business.

And if that particular moment we are running short of cash we can miss out on certain business opportunities.

Cash is also required to maintain as promising to meet unexpected contingencies in a shorter period.

Anytime anything unexpected happens there should be cash available as a precautionary motive to meet the demands,

Maybe certainly demand of consumers would rise and you're not having enough cash to meet the purchase of raw materials or meet other requirements 

There should always be certain precautionary motive cash so that don't miss out on business opportunities, and to deal with any kind of unexpected situation.

Now third is speculative motive. Cash should also be kept to grab profitable opportunities of investment or profit booking as and when the prices are low, or favorable. 

Cash what is kept as a precautionary motive can also be used as a speculative motive.

Now, this cash may be invested in short-term securities because we know that if the cash would be remaining idle, it would be of no use.

And we are losing on the interest that can be earned on it, why not invest in certain, or short term securities,

Which would be which would provide liquidity also like it would be ready to be converted in cash and a shorter period and also revealed a certain interest percentage for the business?

Cash neither invested in short term securities, as, as to grab the opportunities of investment.

Now many times it also happens that the prices of shares may be very low at times.

And that becomes an opportunity for businesses to invest the cash and expect the prices to go high. And then, and then get certain interest percent certain rate of returns on it. 

This is what we call profit-booking when the market is low; invest the extra cash which is there in the business.

Also, you should invest these in short term securities, that liquidity would be maintained and gone.

Now let's talk about the objectives of cash management, till now we understand the motives,

Why do we hold cash in the same manner we can see these objectives also first is optimum cash balance. Now optimal cash balance means it should not be very.

It should not be in excess there should not be a shortage. We, we are anticipating we are calculating we will be waiting in making cash purchase and cash flow statements to see what would be the requirement of cash.

Next year or in our business. Next financial year, and then deciding what would be the optimum cash balance.

Other than that, keeping from the cautionary and speculative motive as well. We need to decide on the optimum cash balance. Soundness grant collection from data.

Cash management also needs to be able to collect the amount that we have given to our debtors on time. 

We are not using it we have expected if we are given time like by after three months we will be collecting this the amount for the sale which we have made.

Now if we are not able to collect it within three months, it will disturb the whole business cycle because again the business has to pay creditors as well.

By collecting some data, that money can be also used to pay the creditors.

Now, if any, where the cycle stops it disturbs and it forms a blockage.  Cash management also deals with prompt collection from data,

This requires maintaining receivables account and new continuously reminding the data that they have to make the payment, otherwise,

Penalties could be charged. And they and these things prompt collection from data is also an important objective of cash management.

Other than that investment of excess cash to unprofitability all, we already talked about it.

Controlling cash inflow and outflow is again the main function and this is why cash flow statements are prepared.

There we will see how cash flows are segregated into three types of activities operating investing and financing activities and then we try to

Calculate what the total cash inflow was and what was the total cash outflow it is also like your income and expenses. when we are talking the income and expenses