Cash management , financial management , SRCC

1. CASH MANAGEMENT
 Cash management is concerned with the managing of:
 cash flows into and out of the firm,
 cash flows with in the firm, and
 cash balances held by the firm at a point of time by financing deficit or
investing surplus cash

3. CASH PLANNI NG
 Cash Flow Planning is when a business forecasts short &
 long term business expenses against the projected incoming cash .
 It allows us to anticipate trouble by creating a cash flow cushion, for
unexpected expenses.
 .,. A method that an insured can use to control the premium payments
that they must make on their policies

4. Objectives of Cash Management
Two basic objectives of cash management
 To meet the requirement of disbursement need as per the payment
schedule
 Payment for wages , purchases, taxes, bills etc
 Have minimum amount of the cash that is locked up in the cash balance
both these objectives are mutually contradictory and thus it is very
difficult for the to maintain a balance between the two.

5. Cash Management involves the
following 4 problems
 Controlling the level of cash
 Controlling the level of inflow of cash
 Controlling the level of outflow of cash
 Optimum investment of surplus cash

6. Managing Cash Collections and
Disbursements
 Accelerating Cash Collections
 Controlling Disbursements

7. MANAGING CASH COLLECTIONS
AND DISBURSEMENTS
 Accelerating Cash Collections
 Decentralized Collections
 Lock-box System
 -Controlling Disbursements
 Disbursement or Payment Float

8. ACCELERATING CASH
COLLECTIONS
 Decentral ised Collections
Number of collection centres
Collection centres will collect cheques from customers and deposit in their local
bank accounts
They will deposit the funds to a central bank
 Lock-box System
Collection centers are established considering the customer locations and volume
of remittances
At each Centre the firm hires a post office box
Remittances are directly picked from the bank whom the firm gives the authority

9. CASH FORECASTING AND
BUDGETING
 CASH BUDGET
 Summary statement of the firm 's expected cash inflows and outf lows
over a projected time period
 CASH FORECASTS
 Estimate of the timing and amounts of cash inflows and outflows over a
specific period

10. Models to determine the optimum
level of cash
 - Miller-Orr Model
 - Baumol Model
 Baumol Model
 This model is based on minimization of 2 costs
 Carrying cost
 When the firm holds cash and it is not in circulation the firm is Loosing the opportunity to invest it somewhere.
This is also called opportunity cost and in this model it is called the carrying cost
 Transaction Cost
 When a firm has kept its cash in securities that can be converted in to cash ,it has to pay certain costs like
commissions,admin costs etc. This is called the Transaction cost
 As per this model that amount of cash( both in hand and in securities) is the
optimum where total of the 2 costs in minimum

11. Models to determine the optimum
level of cash
where
 C = Optimum Cash Balance
 P = Fixed cost per transaction
 S = Opportunity cost of 1Rs per annum( or per month) U= Annual or monthly cash
requirement
 Example: Monthly cash requirement by the Firm Rs 60,000
 Fixed cost per transaction = Rs 10
 Interest rate on market securities/FD = 6% pa
Calculate the optimum cash balance

12. Models to determine the optimum
level of cash

13. Models to determine the optimum
level of cash
- Miller-Orr Model
 Baumol model is suitable where the cash outflow is steady and ca n be
predicted with accuracy in advance
 Where the cash flows are random Miller-Orr model is used
 - This model consists of setting an upper limit, lower limit and return point
for the cash.
 Upper limit is represented = h Lower limit = 0
 Return Point = z

15. Models to determine the optimum
level of cash
 where
 Z = Optimum Cash Balance
 b = Fixed cost per transaction
 a2 = Variance of the daily net cash flow
 I =interest rate on the marketable securities ( per day)
 This model thus also seeks to achieve the minimum of the transact ion and
the opportunity costs

16. The Case for Apple to Keep its
Cash:
 First, Apple is an emerging growth stock, even today. Its growth still
outpaces most stocks, despite its low valuation (P/E multiple). Growth
stocks do not provide dividends because, in theory, growth stocks can
use the cash for more growth. Apple is in the bird’s eye seat for
identifying growth: Apple doesn’t just see growth; Apple creates
growth trends.

17.  Second, as an investor, I would rather that Apple invests its cash for me. Apple is
frugal, purposeful and strategic in its M&A activities. It has utilized its cash to push its
strategies forward. Since the beginning of 2010, Apple has purchased:
 Quattro Wireless: mobile advertising
 Intrinsity: Apple A5 system on chip
 Siri: the voice command software that propels the iPhone 4S
 Poly9: maps
 Polar Rose: face recognition in iPhoto
 IMSense: photography
 CS3: 3D imaging/mapping
 Anobit: flash
 Chomp: App Search

18.  Third, as an investor, I would like Apple to continue to use their cash in
this prudent manner rather than succumb to investor pressure to make
“big” acquisitionons. Suggestions for Apple acquisitions include NetFlix,
SiriusXM, or Akami. But Apple’s success has been buying smaller
companies to incorporate them as a piece of Apple’s larger strategy and
vision, not to take on another company’s approach or strategy. Investors
in Apple should have confidence in Apple’s visions as it has served them
well so far. Using the cash to advance their own network or cloud, as
users of iMessage have experienced, to invest in the next media of what
we used to call “television” or to invest in furthering their “PC-less”
ecosystem, enabling us to use iPhones and iPads without syncing to our
computers makes the most sense.

19.  Lastly, if anything, I would like Apple to split the stock. While there is
absolutely no economic difference in owning 1 share of stock priced at
$540, or 10 shares of the same stock at $54, the difference is
psychological. Consider this: Apple trades at approximately $540 and
is expected to earn $42.72 for the year ending September
2012. Investors consider this “expensive” because the stock is over
$500 per share. However, many investors would consider Apple
affordable if it were trading at $54 and earned $4.27 over the same
period. The only difference is that in the second example, investors
receive 10 shares for $540 versus today when investors only receive one
share: but in both scenarios, investors earn an estimated $42.72 for that
$540 investment.