This document discusses cash management strategies for firms. It covers:
1. Reasons why firms hold cash including transactional, precautionary, and speculative motives.
2. Costs of holding too little or too much cash, including opportunity costs and financing costs.
3. Measuring collection and disbursement float.
4. Techniques for managing cash collections like lockbox systems and concentration banking.
5. Techniques for managing cash disbursements like controlled disbursement accounts.
What are the main advantages of using HR recruiter services.pdfHumanResourceDimensi1
HR recruiter services offer top talents to companies according to their specific needs. They handle all recruitment tasks from job posting to onboarding and help companies concentrate on their business growth. With their expertise and years of experience, they streamline the hiring process and save time and resources for the company.
Putting the SPARK into Virtual Training.pptxCynthia Clay
This 60-minute webinar, sponsored by Adobe, was delivered for the Training Mag Network. It explored the five elements of SPARK: Storytelling, Purpose, Action, Relationships, and Kudos. Knowing how to tell a well-structured story is key to building long-term memory. Stating a clear purpose that doesn't take away from the discovery learning process is critical. Ensuring that people move from theory to practical application is imperative. Creating strong social learning is the key to commitment and engagement. Validating and affirming participants' comments is the way to create a positive learning environment.
Implicitly or explicitly all competing businesses employ a strategy to select a mix
of marketing resources. Formulating such competitive strategies fundamentally
involves recognizing relationships between elements of the marketing mix (e.g.,
price and product quality), as well as assessing competitive and market conditions
(i.e., industry structure in the language of economics).
Personal Brand Statement:
As an Army veteran dedicated to lifelong learning, I bring a disciplined, strategic mindset to my pursuits. I am constantly expanding my knowledge to innovate and lead effectively. My journey is driven by a commitment to excellence, and to make a meaningful impact in the world.
Unveiling the Secrets How Does Generative AI Work.pdfSam H
At its core, generative artificial intelligence relies on the concept of generative models, which serve as engines that churn out entirely new data resembling their training data. It is like a sculptor who has studied so many forms found in nature and then uses this knowledge to create sculptures from his imagination that have never been seen before anywhere else. If taken to cyberspace, gans work almost the same way.
Discover the innovative and creative projects that highlight my journey throu...dylandmeas
Discover the innovative and creative projects that highlight my journey through Full Sail University. Below, you’ll find a collection of my work showcasing my skills and expertise in digital marketing, event planning, and media production.
Business Valuation Principles for EntrepreneursBen Wann
This insightful presentation is designed to equip entrepreneurs with the essential knowledge and tools needed to accurately value their businesses. Understanding business valuation is crucial for making informed decisions, whether you're seeking investment, planning to sell, or simply want to gauge your company's worth.
Premium MEAN Stack Development Solutions for Modern BusinessesSynapseIndia
Stay ahead of the curve with our premium MEAN Stack Development Solutions. Our expert developers utilize MongoDB, Express.js, AngularJS, and Node.js to create modern and responsive web applications. Trust us for cutting-edge solutions that drive your business growth and success.
Know more: https://www.synapseindia.com/technology/mean-stack-development-company.html
Kseniya Leshchenko: Shared development support service model as the way to ma...Lviv Startup Club
Kseniya Leshchenko: Shared development support service model as the way to make small projects with small budgets profitable for the company (UA)
Kyiv PMDay 2024 Summer
Website – www.pmday.org
Youtube – https://www.youtube.com/startuplviv
FB – https://www.facebook.com/pmdayconference
Tata Group Dials Taiwan for Its Chipmaking Ambition in Gujarat’s DholeraAvirahi City Dholera
The Tata Group, a titan of Indian industry, is making waves with its advanced talks with Taiwanese chipmakers Powerchip Semiconductor Manufacturing Corporation (PSMC) and UMC Group. The goal? Establishing a cutting-edge semiconductor fabrication unit (fab) in Dholera, Gujarat. This isn’t just any project; it’s a potential game changer for India’s chipmaking aspirations and a boon for investors seeking promising residential projects in dholera sir.
Visit : https://www.avirahi.com/blog/tata-group-dials-taiwan-for-its-chipmaking-ambition-in-gujarats-dholera/
3.0 Project 2_ Developing My Brand Identity Kit.pptxtanyjahb
A personal brand exploration presentation summarizes an individual's unique qualities and goals, covering strengths, values, passions, and target audience. It helps individuals understand what makes them stand out, their desired image, and how they aim to achieve it.
3.0 Project 2_ Developing My Brand Identity Kit.pptx
Lec. Cash MGT control systems.pdf
1. 12/23/2022
Prepared By
Dr. Mahmoud Otaify
2
1. Why Firms Hold
Cash?
2.What is Cost of
Holding less or excess
Cash?
3. How to measure
Collection or
Disbursement float?
4. How can firm
manage cash
collection?
5. How can firm
manage cash
disbursement?
1
2
3. 12/23/2022
5
Dr. Mahmoud Otaify - Cash MGT
6
Transaction motive
The need to hold cash to satisfy normal disbursement and collection
activities associated with a firm’s ongoing operations.
It uses cash on hand to pay bills
To run firm’s ongoing operations
Payment of
wages and
salaries
trade debts taxes, dividends.
5
6
4. 12/23/2022
Dr. Mahmoud Otaify - Cash MGT 7
Precautionary motive
The need to hold cash as a safety margin to act as
a financial reserve
It will use cash reserves to deal with
What If the firm faces unexpected
conditions
Speculative Motive
The need to hold cash in order to be able to
take advantage
It will use cash to take advantage
What If the Company finds opportunities such has
bargain purchase
price
attractive interest
rates
Favorable exchange
rate Fluctuations
Dr. Mahmoud Otaify - Cash MGT
8
7
8
5. 12/23/2022
What is Cost of
Holding less or
excess Cash?
Dr. Mahmoud Otaify - Cash MGT
2
Dr. Mahmoud Otaify - Cash MGT 10
When a firm holds cash in
excess of some necessary
minimum
an opportunity cost of
holding excess cash (in
currency or bank deposits)
=interest income that could be
earned in the next best use,
such as investing in marketable
securities
If the firm maintains too small a
cash balance, it may run out of
cash
firm may have to raise
cash on a short-term
basis
=by selling marketable
securities or borrowing
= This involves various
costs
9
10
7. 12/23/2022
Collection or Disbursement times
= the time delay between when payment is
placed in the mail and when it is received
Mailing Delay
(Float)
= the time it takes the receiver of a check to
process the payment and deposit it in a bank
for collection
Check Processing
delay (float)
= the time required to clear a check
through the banking system
Bank’s Availability
delay (clearing float)
Dr. Mahmoud Otaify - Cash MGT 13
Float sent not Useable
Dr. Mahmoud Otaify - Cash MGT 14
Book Cash
Balance
Clearing Process
of checks
Bank cash
Balance
Float
13
14
8. 12/23/2022
15
On June
7
• GM currently has
$100,000 on deposit
with its bank
On June
8
• it buys some raw
materials and pays
with a check for
$30,000
On June
14
• Supplier presented
check to the bank
Float = Firm’s available balance
− Firm’s book balance
=100,000 – 100,000
= 0
Disbursement Float
Float = Firm’s available
balance − Firm’s book
balance
=100,000 – 70,000
= 30,000
Float = Firm’s available balance −
Firm’s book balance
= 70,000 – 70,000 = 0
16
On Oct 14
• GM currently has
$100,000 on deposit
with its bank
On Oct 20
• GM receives a check
from a customer for
$40,000
On Oct 25
• GM presented the
check to the
customer’s bank and
received $40,000
Float = Firm’s available balance
− Firm’s book balance
=100,000 – 100,000
= 0
Collection Float
Float = Firm’s available balance
− Firm’s book balance
=100,000 – 140,000
= - 40,000
Float = Firm’s available balance − Firm’s book
balance =140,000 – 140,000 = 0
Dr. Mahmoud Otaify - Cash MGT
15
16
9. 12/23/2022
Dr. Mahmoud Otaify - Cash MGT 17
firm’s payment
(disbursement) activities
generate
disbursement float
Firm’s
collection activities
generate
collection float
The net effect (net float)
the sum of the total collection
and disbursement floats
Calculating Float - Example
Dr. Mahmoud Otaify - Cash MGT 18
What are your disbursement, collection,
and net floats?
One day
you write a check
for $4,000
then deposit a
check for $3,000
You have $10,000 on deposit
no outstanding checks uncleared deposits
Disbursement Float
= 10,000 – 6,000 =
+4,000
Collection Float =
10,000 – 13,000 =
-3,000
Net float = +4,000 –
3000 = +1,000
Net float = 10,000 –
9000 = +1,000
17
18
10. 12/23/2022
1. You have $95,000 on deposit
with no outstanding checks or
uncleared deposits. One day
you write a check for
$24,300.
a.Does this create a
disbursement float or a
collection float?
b.What is your available
balance? Book balance?
Dr. Mahmoud Otaify - Cash MGT 19
Cash Collection
MGT Systems
Lockbox
system
Concentration
Bank
19
20
11. 12/23/2022
Dr. Mahmoud Otaify - Cash MGT 21
What if
customers will pay with cash,
check, or credit card
at the point of sale
there is no problem with
mailing delay
some the payments a
company receives are checks
that arrive through the mail
all three components of
collection time become
relevant
Dr. Mahmoud Otaify - Cash MGT 22
21
22
13. 12/23/2022
Dr. Mahmoud Otaify - Cash MGT 25
A lockbox system
reduces mailing
time
• because checks
are received at
a nearby post
office instead of
at corporate
headquarters.
Lockboxes also
reduce the
processing time
• because the
corporation
doesn’t have to
open the
envelopes and
deposit checks
for collection.
The process used by the firm to bring lockbox and other deposits together into one bank,
often called the concentration bank.
2
25
26
14. 12/23/2022
Dr. Mahmoud Otaify - Cash MGT 27
DTC
depository transfer
check
An unsigned
check drawn
on one of a
firm’s bank
accounts and
deposited in
Concentration
bank.
ACH
Automated
clearinghouse
transfer
A computerized
clearing facility
makes a paperless
transfer of funds
between the payer
and payee banks
wire
transfer
electronic
communication
via bookkeeping
entries
removes funds
from the payer’s
bank and deposits
them in the payee’s
bank
Cash
Disbursement
MGT Systems
slow down disbursements as much as possible
Dr. Mahmoud Otaify - Cash MGT
28
27
28
15. 12/23/2022
Techniques to Manage Cash
Disbursement
Increasing
Disbursement Float
Disbursement float can be increased
by writing a check on a geographically
distant bank.
Bad business practice
Controlling
Disbursements
Develop systems to have no more than
the minimum amount necessary to
pay bills on deposit in the bank.
1. zero-balance account
2. Controlled disbursement account
Dr. Mahmoud Otaify - Cash MGT 29
Dr. Mahmoud Otaify - Cash MGT 30
each of these accounts must
have a safety stock of cash to
meet unanticipated demands
total amount of cash held as a
buffer is smaller under the
zero-balance arrangement,
which frees up cash to be used
elsewhere
29
30