CAMSM

1. C A S H A N D
M A R K E T A B L E
S E C U R I T I E S

2. Cash
The ready currency to which all liquid
assets can be reduced.
Marketable Securities
Short-term, interest-earning, money
market instruments used by the firm to
obtain a return on temporarily idle fund

3. M O T I V E S F O R H O L D I N G
C A S H A N D N E A R - C A S H
B A L A N C E S
Near-Cash
Marketable securities viewed the same as cash because
of their high liquidity.
Transactions Motive
A motive for holding cash or near cash to make planned
payments for items such as materials and wages.
Safety Motive
A motive for holding cash or near cash to protect the firm
against being unable to satisfy unexpected demands for cash.
Speculative Motive
A motive for holding cash or near cash to put unneeded
funds to work or to be able to quickly take advantages of
unexpected opportunities.

4. Operating Cycle (OC)
The amount of time that elapses from the
point when the firm begins to build inventory to
the point when cash is collected from sale of the
resulting finished product.

5. C A S H C O N V E R S I O N C Y C L E
( C C C )
 Theamountoftimethefirm’scashis tiedup
betweenpaymentfor production inputs and
receipt of payment fromthesaleof the
resultingfinishedproduct.
 Calculatedasthenumberofdaysinthe
firm’soperatingcycleminus theaverage
paymentperiodforinputstoproduction.

6. F O R M U L A I N G E T T I N G C C C
CCC=OC–APP
Where:
OC–Operating Cycle
APP–AveragePayment Period

7. M A N A G I N G T H E C A S H
C O N V E R S I O N C Y C L E
 Apositivecashconversioncycle meansthat thefirm
usenonspontaneous (i.e., negotiated) formsof
financing such asunsecuredshort-term loansor
securedsources offinancing, tosupport thecash
conversioncycle.
 Ideally, afirmwouldlike to haveanegativecash
conversioncycle. AnegativeCCC meansthe average
paymentperiod(APP) exceeds theoperating cycle(OC).

8. T H E
B A S I C S T R A T E G I E S
 Turnoverinventoryasquicklyaspossible, avoiding stock
outs(depletions of stock) that mightresult in aloss of
sales.
 Collect accountsreceivable asquicklyaspossible
withoutlosing future sales becauseof high-pressure
collection techniques. Cashdiscounts, if theyare
economicallyjustifiable, maybeusedtoaccomplishthis
objective.
 Payaccounts payableaslate aspossible without
damagingthefirm’s credit rating, but takeadvantageof
anyfavorable cashdiscount.

9. E F F I C I E N T I N V E N T O R Y –
P R O D U C T I O N M A N A G E M E N T
 Onestrategy availableto MAXis to increase
inventoryturnover. Todoso, thefirmcanincrease
rawmaterialsturnover, shortentheproduction
cycle, orincrease finished goodsturnover.

10. A C C E L E R A T I N G T H E
C O L L E C T I O N O F A C C O U N T S
R E C E I V A B L E
 Anothermeansofreducingthecashconversion
cycle (andthenegotiatedfinancingneed) is to
speedup,oraccelerate,thecollectionofaccounts
receivable.

11. S T R E T C H I N G A C C O U N T S
P A Y A B L E
 Afirmpaysits bills aslateaspossiblewithout
damagingits credit rating. Althoughthis approach
is financially attractive, it raises animportant
ethical issue.

12. C O M B I N I N G C A S H
M A N A G E M E N T S T R A T E G I E S
 Firmstypicallydonotattempt toimplement just
onecashmanagementstrategy; theyattemptto
usethemall toreducetheir reliance onnegotiated
financing.
 Firmsshould take care to avoid havingalarge
number of inventorystock outs toavoidlosing
sales.

13. C A S H M A N A G E M E N T
T E C H N I Q U E S
FLOAT
• referstofundsthat havebeendispatchedbya
payerbut arenot yetinformthatcanbespentby
thepayee.
• It alsoexists whenapayeehasreceivefundsina
spendableformbut thesefundshavenot been
withdrawnfromtheaccountofthepayer.

14. T Y P E S O F F L O A T
CollectionFloat
Thedelaybetweenthetimewhenapayeror
customerdeducts apaymentfromits checkingaccount
ledger andthetimewhenthepayeeorvendor actually
receivesthefunds inaspendableform.
Disbursement Float
the lapse betweenthe timewhenafirm deducts a
payment from its checking account ledger (disburses it)
and the time when funds are actuallywithdrawn fromits
account.

15. C O M P O N E N T S O F F L O A T
Mail Float
thedelaybetweenthetimewhenapayermails a
paymentandthetimewhenthepayeereceives it.
ProcessingFloat
thedelaybetweenthereceiptofacheckbythepayee
andits deposit inthefirm’saccount.
ClearingFloat
thedelaybetweenthedeposit ofacheckbythepayee
andtheactualavailabilityofthefunds.

16. F L O A T T I M E L I N E
Checked issued
and mailed by
the payer
company
Checked
received by the
payee company
Bookkeeping
entries made
and check
deposited
Check Clears
Mail Float
(3 days)
ProcessingFloat
(2 days)
ClearingFloat
(4 days)
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