Strategic Financial Management- Cash Management and Working Capital Finance

1. Cash Management and Working Capital Finance
Dayana Mastura Baharudin

2.  Cash Management refers to the
 collection,
 handling,
 control and
 investment of the organizational cash and cash equivalents,
 to ensure optimum utilization of the firm’s liquid resources.
 Money is the lifeline of the business, and therefore it is
essential to maintain a sound cash flow position in the
organization.

9. Treasury Bills
• Short term
govt IOUs
• Can be sold
when needed
Term deposits
• Fixed period
deposits
Certificate of
deposit
• Issued by
banks
• Entitle the
holder to
interest plus
principal
• Can be sold
when needed
Commercial
paper
• Short term
IOUs
• issued by
companies
• unsecured

12. The approach taken to financing the level,
and financing the fluctuations in the level
of net working capital

13. WORKING
CAPITAL
FINANCING
DECISIONS
 In order to understand working capital financing
decisions, assets will be divided into three
different types:
 Non-current (fixed) –from which an organization
expects to derive benefit over a number of periods;
for example buildings or machinery
 Permanent current assets – the minimum current
asset base (eg inventory, receivables) required to
sustain normal trading activity
 Fluctuating current assets – the variation in
current assets during a period, for example due to
seasoned variations

14.  Long-term finance vs Short-term finance
 Long-term finance is usually more expensive than short-term
finance because investors require a higher return for locking their
money away for longer time periods
 However long-term finance provides higher security to the
borrower than short-term finance, because there is no guarantee
that short-term finance will be available to them when it is needed
in the future

15. Aggressive Financing
Strategy
Minimal long-term finance for working
capital
Mainly uses cheaper short-term sources
of finance – problems if short-term
finance is not available when required
This strategy is risky
Conservative
Financing Strategy
High level of long-term finance for
working capital
Mainly uses more secure long-term
sources of finance
This strategy is safer but can be
expensive