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 

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