Cash Management

Course : Managerial Finance Lecture : Marc Credit Hours : 3 Credits Semester Sessions : 3 Semester, 2021/2022 Session Prepared By : Kenzo LECTURE NOTES CASH MANAGEMENT Every company always carries out its business need cash. Cash is an element of capital work with the highest level of liquidity, where increasingly The higher the amount of cash in the company, the more it means high level of liquidity of the company. Besides that, there are also several reasons or motives why a company needs to have sufficient cash, These motifs are as follows: 1. Transaction Motive The transaction motive for holding cash is to enables the company to run its business efficiently good, in terms of maintaining the continuity of purchasing activities necessary materials, selling goods generated and so on. 2. Prevention Motive The precautionary motive in holding cash is primarily relationship with the predictability of income and cash disbursements, so that if possible forecast it to be high, the company can determine when when to hold large cash and when to hold small cash. 3. Speculative Motive The speculative motive for holding cash is to enabling companies to embrace opportunities gain profits that may arise due to the situation and another thing. Apart from the motives mentioned above, a healthy company requires sufficient cash availability, because several reasons, namely: 1. Companies really need to have sufficient cash to Get discounts on cash purchases. 2. Because the current ratio and acid test ratio are elements which is important in credit analysis, credit standing and with this condition the company can maintain credit relationships with banks and other sources. 3. Large amount of cash, useful for taking out profit from profitable business opportunities which may appear at any time. 4. The company must have sufficient liquidity to meet or look after emergencies, such as strikes and so on. Cash Budget (Cash Budget) Cash Budget is an estimate of the cash position for a certain period in the future. Cash budget not only shows the amount of finance needed but also the time. This budget shows the amount of funds needed from month to month, week to week, day to day so This cash budget can be a very important tool for financial manager. By preparing the cash budget, you can find out whether the company is in a surplus or deficit, By knowing the cash deficit situation, you can do it beforehand determine the source of funds to cover the deficit and vice versa, if there is a surplus, you can plan beforehand use of excess cash. The preparation of the cash budget is carried out in several ways stage : 1) Prepare estimates of cash receipts and disbursements according to the company's operating plan. 2) Prepare estimates of funding/credit needs from banks needed to cover the cash deficit due to company operations, payment estimates are also prepared credit interest and repayment time. 3) Rearrange the overall revenue estimate and cash disbursements in the form of a cash budget.