cash management
DESCRIPTION
This PPT give idea about cash management in organisationTRANSCRIPT
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CASH MANAGEMENT
Dr. A. K. ASTHANA Director
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INSTITUTE OF COOPERTIVE MANAGEMENT
E – 8/77, TRILANGA ROAD, SHARPUR BHOPAL ( INDIA)
Phone – 0755 – 2725477 / 4034733
WEB: icmbpl.com
Facebook: icmbhopal
E-mail: [email protected]
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Introduction
• Cash is one of the current asset of business
• Any business organisation need it all the time.
• A business organisation need to keep sufficient cash.
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• Any shortage of cash will hamper the business operation
• on other hand excess of cash is also not going to help
• .
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Cash Management
• business organisation desires to utilise available cash in most effective way
• But management of cash is not as simple
• It is challenging to decide how much cash is needed for day to day operation and how much cash should be put aside to meeting any exigency.
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• objective of cash management is to maintain sound cash position to maintain liquidity and use excess cash in profitable way.
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Cash Management and Entrepreneurial Skill
• cash management is science
• A person need entrepreneurial skill to bring out good performance cash management like searching and arranging financial source, cash planning, cash budgeting, etc
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Problem of Cash Management
• Problem in cash management has been identified in these four areas:
1. Controlling Level of Cash
2. Controlling in-flow of cash
3. Controlling out-flow of cash
4. Optimal investment of excess cash
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• 1. Controlling Level of Cash
• Every organisation try to keep minimum level of cash balance
• For deciding minimum level of cash the following things are taken into consideration:
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• A. Predictable Discrepancies
Some discrepancies in business organisations are predictable
comes from discrepancy between in-flow and out-flow of cash.
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B. Unpredictable discrepancy:
Labour strike, sudden rise in cost of input material, market recession
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Such incidence may affect sudden in-flow of cash or out-flow of cash
.
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C Source of Fund Cash level depends on source of funds also from which companies obtain cash at short notice. credibility of company becomes important.
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D. Relationship with bank:
Level of cash also depends on the relation of company with bank.
Relationship with bank depends much on the credibility of company
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• this connection other major important points are financial condition of bank, its location, managerial ability of its chief officer .
• financial products like cash credit management, collection of bills, discounting of bills etc. that it sells to company
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• 2. Controlling of In-flow of cash:
Adequate control on cash in-flow is also problematic area
. It is concerned with speedy collection of cash and also with preventing fraudulent diversion of cash in-flow.
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• Fraudulent diversion of cash can be stopped by installing internal check system.
• Cash receipt activities are break down in several stages ….. each stage job is assigned to different employees.
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• For speedy Collection
• Lock- Box System:
• This system of collection of in-flow cash is very popular in USA.
• company open deposit accounts in several banks are different geographical locations.
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• Lock box in post office serves as regional bank for company.
• Customers sends their remittance to the lock box.
• The bank collect cheques from lock box several time in a day and clear the cheque and deposit the amount in the account of customer
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• Collection through regional branch offices:
• In case company work thought regional branch offices at different geographical location, then this system is very effective.
• officer of regional branch office is authorised to collect in-flow cash on behalf of head office
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• After collecting the cheque, officer deposit it to local bank which inter alia transfer the fund to the bank of head office.
•
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• 3. Controlling Out-flow of cash:
•
• In order to control out flow of cash, most company follow centralised cash payment system
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• all payments from regional branch office is transferred to head office and head office in turn pay the bills directly to the parties.
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• 4. Optimal Investment of Excess cash
• The proper investment of excess cash in company at short notice is also a problem area.
• Finance manager use its prudence and discretion for investment of excess cash.
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Cash Planning and Cash Control
• In order to maintain flow of cash, cash planning is done.
• well in time to maintain adequate cash balance in hand to meet present expenditure and unforeseen contingency
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• Tools for cash Planning
• A. Net cash forecast: • B. Cash Budget: • C. Forecasting of overall working capital
management
• A. Net cash forecast:
• It means forecast of cash inflow and cash out flow over a period of time.
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Cash Control
• Planning and control are twin function of management.
• Formulation of cash management policy, procedure and practice
•
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• Tools for cash Control:
•
A. Cash budget report:
B. Cash Flow statement
C. Ration Analysis:
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Cash Budget
• It is systematic analysis of “ requirement of cash” over a period of time. It is prepared with help of cash inflow and cash out flow statement.
• Cash budget may be short term cash budget and long term cash budget.
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Importance of Cash Budget
• 1. Evaluation of Performance: Cash budget acts as a standard for evaluating financial performance by comparing the actual performance with the budgeted figure.
• If deviation is positive then it is said that performance is good.
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• 2. Sound Dividend Policy: Cash budget plan for cash dividend to shareholders in consistent with liquid cash position.
• 3. Help in planning: Cash budget indicate either cash surplus or cash deficiency. Accordingly planning is done.
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• 4. Controlling Cash Expenditure: Cash budget controls expenditure of various department as they are not allowed to exceed the limit set in budget.
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• 5. Testing Influence of Proposed Expansion plan
• Cash budget forecast the inflow of cash from the investment plan and testify its impact on the cash
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