This document discusses various aspects of cash management, including: 1. It describes short-term and long-term cash forecasting methods like the receipt and disbursement method and adjusted net income method. 2. It discusses facets of cash management like cash planning, managing cash flows, optimal cash levels, and investing surplus cash. 3. It presents two cash management models - Baumol's inventory model which determines optimal cash balance under certainty, and Miller-Orr's stochastic model which allows for variation in daily cash flows.

1. CASH MANAGEMENT
PRESENTED TO: PRESENTED BY:
Dr. DEEPA MANGLA SEEMA14104023
VIVEK 14104025
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2. Cash forecasting
• Short-term cash forecasts
• Long-term cash forecasts.
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3. Short-term forecasting methods
• The receipt and disbursement method.
• The adjusted net income method.
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4. CASH MANAGEMENT
It is concerned with the managing of :
(1) Cash flows into and out of the firm,
(2) cash flows within the firm,
(3) cash balances held by the firm at a point of time
by financing deficit or investing surplus cash.
It also seeks to achieve liquidity and control .
it is significant because it is used to pay the firms
obligation.
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5. Facets of cash management
• Cash planning
• Managing the cash flows
• Optimum cash level
• Investing surplus cash
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6. Motives for holding cash
•The transactions motive.
•The precautionary motive.
•The speculative motive.
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7. Cash planning
• Cash planning is a technique to plan and
control the use of cash. It helps to anticipate
the future cash flows and need of the firm and
reduces the possibility of idle cash balances
and cash deficits.
• Cash planning may be done on daily ,weekly
or monthly basis. it depends upon the size of
firm and philosophy of the management.
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8. Cash forecasting
• Short-term cash forecasts
• Long-term cash forecasts.
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9. Short-term forecasting methods
• The receipt and disbursement method.
• The adjusted net income method.
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10. RECEIPT AND PAYMENT METHOD
• BENEFITS : It gives a complete picture of all
the items of expected cash flows.
• It is a sound tool of managing daily cash
operations.
• Limitation:its reliability is reduced because of
uncertainity of cash forecasts.
• It fails to highlight the significant movements
in the working capital items.
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11. Cash Management Model
• A number of mathematical model have been
to develop to determined the optimal cash
balance.
• Two of such model are as follow;
a) William J. Baumol's inventory model
b)M. H. Miller and Daniel Orr’s Stochastic
model
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12. William J. Baumol's Inventory Model
Baumol’s Model of Cash Management-
• Trades off between opportunity cost or carrying
cost or holding cost & the transaction cost. As
such firm attempts to minimize the sum of the
holding cash & the cost of converting
marketable securities in to cash.
• Helps in determining a firm's optimum cash
balance under certainty
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13. Optimum Cash Balance under Certainty: Baumol’s
Model
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GRAPHICAL REPRESENTATION

14. William J. Baumol's Inventory model
Assumptions
• Cash needs of the firm is known with certainty
• Cash Disbursement over a period of time is
known with certainty
• Opportunity cost of holding cash is known and
remains constant
• Transaction cost of converting securities into
cash is known and remains constant
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15. William J. Baumol's Inventory Model
Algebraic representation of William J.
Baumol's Inventory model
C = 2A*F
C = Optimum Balance
A = Annual Cash Distribution
F = Fixed Cost Per Transaction
O = Opportunity Cost Of Holding
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16. William J. Baumol's Inventory Model
Evaluation of the model
• Helpful in determining optimum level of Cash
holding
• Facilitates the finance manager to minimize
Carrying cost and Maintain Cash
• Indicates idle cash Balance Gainful
employment
• Applicable only in a situation of certainty in
other words this model is deterministic model
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17. Miller-Orr Model
Overview
• The Miller and Orr model of cash
management is one of the various cash
management models in operation. It is an
important cash management model as well. It
helps the present day companies to manage
their cash while taking into consideration the
fluctuations in daily cash flow.
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18. Miller-Orr Model
Allows Daily Cash Flow Variation
Provides two control limits
1)Upper Control Limit
2)Lower Control Limit
& Return Point
The Difference depends upon
1) The Transaction Cost (c)
2) The Interest Rate (i)
3) The Standard Deviation of net cash flow (σ)
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19. Formula
(Upper limit- Lower Limit)=( 3/4 x transaction cost X variance of cash flows )1/3
interest rate
Symbolically (Z)= ( 3/4 x cσ²/i )1/3
Upper Limit= Lower Limit + 3Z
Return Point= Lower Limit + Z
Average Cash Balance = Lower Limit +4/3 Z
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20. Miller-Orr Model
Benefits
• Allows for net cash flow in a random fashion.
• transfer can take place at any time and are
instantaneous with a fixed transfer cost.
• Produce control limit can be used as basis for
balance management
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21. Miller-Orr Model
Limitations
• May prove difficult to calculate.
• Monitoring needs to be calculated for
the organizations benefits becomes a
tedious Work.
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22. Investing Surplus Cash in
Marketable Securities
• Selecting Investment Opportunities:
– Safety
– Maturity
– Marketability

23. Types of Short- Term Investment
Opportunities
• Treasury Bills
• Commercial Papers
• Certificates of Deposits
• Bank Deposits
• Money Market Mutual Funds
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