• Share
  • Email
  • Embed
  • Like
  • Save
  • Private Content
1171690 634505252879445000
 

1171690 634505252879445000

on

  • 132 views

 

Statistics

Views

Total Views
132
Views on SlideShare
132
Embed Views
0

Actions

Likes
1
Downloads
11
Comments
0

0 Embeds 0

No embeds

Accessibility

Upload Details

Uploaded via as Microsoft PowerPoint

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

    1171690 634505252879445000 1171690 634505252879445000 Presentation Transcript

    • 2 N D CASH MANAGEMENT Chapter 17 CASH MANAGEMENT Copyright © 2008, Dr Sudhindra Bhat 17 – 1 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books
    • 2 N D CASH MANAGEMENT Learning Objective  Give the nature of cash  List out the motives for holding cash  Discuss the objectives of cash management  Narrate the aspects of cash management  Explain the factors determining cash needs  Say cash budget, procedure, purpose of cash budget  Discuss the types of cash forecasting  Know the strategies for accelerating cash inflows, and slowing down payments  Determine optimum cash balance  Explain the models of cash management  Identify the investment avenues for investing surplus cash Copyright © 2008, Dr Sudhindra Bhat 17 – 2 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books
    • 2 N D CASH MANAGEMENT Nature of Cash  Cash is the medium of exchange for purchase of goods and services and for discharging liabilities. In cash management the term cash has used in two senses.  Narrow Sense: Under this cash covers currency and generally accepted equivalents of cash, viz., cheques, demand drafts and banks demand deposits.  Broad Sense: Here, cash includes not only the above stated but also near cash assets. There are Bank’s time deposits and marketable securities. The marketable security can easily sold and converted into cash. Here cash management is in broader sense. Copyright © 2008, Dr Sudhindra Bhat 17 – 3 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books
    • 2 N D CASH MANAGEMENT Here is a small story Catherine's business is growing and she's making a good profit. However, she never seems to have enough money to pay her bills. This month she had to pay the business insurance premium with her credit card. “ What is wrong with this picture? “ Copyright © 2008, Dr Sudhindra Bhat 17 – 4 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books
    • 2 N D CASH MANAGEMENT Catherine has what is known as a "cash flow problem. " That means that the cash flowing into her business is out of synch with the cash moving out. The result is that she is temporarily caught short when her bills come due. Catherine needs to plan ahead so she will know whether or not she will have enough cash available when she needs it. Copyright © 2008, Dr Sudhindra Bhat 17 – 5 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books
    • CASH MANAGEMENT This is not a story  Larsen & Toubro in FY 99  the company showed a net profit before tax of Rs.441 crores. But after considering changes in working capital, the cash generated from operations was a mere Rs. 36 crores. To sustain its growth, the company had to invest Rs. 632 crores in fixed assets - leading to a negative free cash flow (even before considering dividends and investments).  ACC in FY 2002  made Rs.137.5 cr where as the cash generated from operating activity was Rs. 483.98 which shows their good WCM which gave them cash balance of Rs.27.49cr  Telco in FY 2002  Made a Loss of Rs. 48914cr but cash generated from operations were actually 2863.4cr. 11 – 6 Copyright © 2006, Dr Sudhindra Bhat FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books
    • CASH MANAGEMENT “Cash Pays No Interest” Why do Individuals & Corporations hold billions of dollars in cash? Why don’t we take all cash & invest in interest bearing securities? - “cash” gives you more liquidity than securities, You can use it to buy things. Copyright © 2006, Dr Sudhindra Bhat 11 – 7 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books
    • 2 N D CASH MANAGEMENT What is cash  Cash is ready money in the bank or in the business.  It is not inventory, it is not accounts receivable and it is not property. These might be converted to cash at some point in time,  But it takes cash on hand or in the bank to pay suppliers, to pay the rent, and to meet the payroll. Profit growth does not necessarily mean more cash. Copyright © 2008, Dr Sudhindra Bhat 17 – 8 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books
    • 2 N D CASH MANAGEMENT Motives for holding Cash  Transaction Motive  Precautionary Motive  Speculative Motive  Compensating Balance Copyright © 2008, Dr Sudhindra Bhat 17 – 9 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books
    • 2 N D CASH MANAGEMENT Does that mean it doesn’t matter how much cash you hold? “no”, as a financial manager you need to hold cash balance upto the point where marginal value of the liquidity is equal to value of interest foregone. Copyright © 2008, Dr Sudhindra Bhat 17 – 10 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books
    • CASH MANAGEMENT Cost of holding cash Opportunity cost – the opportunity cost of excess cash held in currency or bank deposits is the interest income that could be earned in the next best use, such as investment in marketable securities. The firm has to therefore weigh the cost of holding cash with the benefits of holding it. Copyright © 2006, Dr Sudhindra Bhat 11 – 11 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books
    • 2 N D CASH MANAGEMENT Cash Cycle collections Information & control Borrow or invest Payments Copyright © 2008, Dr Sudhindra Bhat 17 – 12 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books
    • CASH MANAGEMENT Understanding Float Float – difference between cash balance recorded in the cash account and the cash balance recorded at the bank Disbursement float : Generated when a firm writes checks Available balance at bank – book balance > 0 Collection float : Checks received increase book balance before the bank credits the account Available balance at bank – book balance < 0 Net float = disbursement float + collection float Copyright © 2006, Dr Sudhindra Bhat 11 – 13 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books
    • CASH MANAGEMENT Cash Collection Payment Mailed Mailing Time Payment Received Payment Deposited Processing Delay Cash Available Availability Delay Collection Delay Copyright © 2006, Dr Sudhindra Bhat 11 – 14 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books
    • 2 N D CASH MANAGEMENT Collections  Pre authorized Payment arrangement  Float    Order Processing Float Buyer Float Deposit Float   Lock – Box System Decentralized collections Copyright © 2008, Dr Sudhindra Bhat 17 – 15 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books
    • 2 N D CASH MANAGEMENT One of the goals of float management is to try and reduce the collection delay. There are several techniques that can reduce various parts of the delay. Copyright © 2008, Dr Sudhindra Bhat 17 – 16 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books
    • Controlling Disbursements  Disbursement Float  Zero- Balance Account  Controlled Disbursement Account  Electronic Fund Transfer Copyright © 2006, Dr Sudhindra Bhat 11 – 17 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books
    • 2 N D CASH MANAGEMENT Credit Management: Key Issues  Granting credit increases sales  Costs of granting credit  Chance that customers won’t pay  Financing receivables  Credit management examines the trade-off between increased sales and the costs of granting credit Copyright © 2008, Dr Sudhindra Bhat 17 – 18 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books
    • CASH MANAGEMENT Cash flow from granting credit Credit Sale Check Mailed Check Deposited Cash Available Cash Collection Accounts Receivable Copyright © 2006, Dr Sudhindra Bhat 11 – 19 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books
    • CASH MANAGEMENT Collection Policy  Monitoring receivables    Keep an eye on average collection period relative to your credit terms Use an aging schedule to determine percentage of payments that are being made late Collection policy  Delinquency letter  Telephone call  Collection agency  Legal action Copyright © 2006, Dr Sudhindra Bhat 11 – 20 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books
    • 2 N D CASH MANAGEMENT Case for Class Discussion Case 1 :  BHATT ENTERPRISES CASE : CASH FORECASTING AND INVESTING Case 2 :  BAJAJ ELECTRONICS CASE : CASH FORECASTING Copyright © 2008, Dr Sudhindra Bhat 17 – 21 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books