Green Modern Financial Management Presentation

Chapter 12:
Cash and Marketable

Securities
Management
Introduction
Managing cash is
becoming even more
sophisticated in the global
and electronic age of the
21st century as finance
managers try to squeeze
the last peso of profit out
of their cash management
strategies.
Objective of Cash Management
The basic objective in cash management is to keep the
investment incash as low as possible while still keeping the firm
operating efficiently and effectively.
A financial officer can use the following strategies in monitoring cash
balances:
Accelerate cash flows by optimizing mechanisms for collecting cash
Monitpr the cash disbursement needs or payments schedule
Minimize the amount of idle cash or funds commited to transactions
and precautionary balances; and
Avoid misappropriation and heading losses in the normal course of
business
Proper Management of
Cash Flow
A. Improving forecasts of cash
flows
B. Using floats
C. Synchronizing cash inflows
and outflows
D. Accelerating collections
E. Controlling disbursemnents
F. Obtaining additional funds
when and where they are
needed
Reasons for Holding Cash
Balance
Transaction Precautionary Compliance Investment

Facilitation Motive with Opportunities
Creditors
Determining the Target
Cash Balance
1. Cash Budget
2. Cash Break-even Chart
3. Optimal Cash Balance
Using the;
a. Baumol Model
b. Miller-Orr Model
Cash Budget
The cash budget is the tool used to
present the expected cash inflows
and cash outflows.
Cash Break-even
Chart
This chart shows the relationship
between the company’s cash needs
and cash sources.
The Baumol Model
one of the models that can be used to
determine the optimal cash balance is the
“Baumol Model”.
The optimal cash balance can be found by

using the following variables and equation.
1. The total cost of cash balances consist

of a holding (or opportunity) equations.
2. The minimum costs of each cash

balances.
The Miller-Orr Model
The Miller-Orr model takes a different
approach to calculating the optimal cash
management strategy.
Other Factors Influences the Target Cash

Balance
Option to incur short term borrowing to
meet unexpected demands for cash.
Transaction Costs and Time Element.
Many firms must keep certain average
minimum balances in their depsit
accounts as part of borrowing
agreements with their bank.
Cash Management
Techniques
Effective cash management
encompasses the proper management
of cash inflows and outflows, which
involve:
1. Synchrinizing cash flows

2. Using floats
3. Accelerating cash collections
4. Getting available funds to where they
are needed
5. Cintrolling disbursements
Synchronizing Cash Flows
Is a situation in which inflows coincide with
outflows thereby permitting a firm to hold low
transactions balances.
Using Floats
is defined as the difference between the
balance shown in the firm’s books and the
balance on the banks record.
Disbursement Float
represents the value of the checks the firm has
writtenbut which are still being processed and thus
have not been deducted from the firm’s accounts
balance by the bank.
Collections Float
represents the amount of checks that have
been received but which have not yet been
credited to the fir’s account by the bank.
Accelerating Cash Collections

The finance manager should take the steps for
speedy recovery from debtors and for this
purpose, proper internal control shoulod be
installed in the firm.
1. Prompt billing and periodic statements

2. Incentives such trade and cash discounts
3. Prompt deposit
4. Direct deposit to firms’s bank account
5. Electronic depository transfer or payment by wire
6. Maintenance of regional collection office
Slowing Disbursements
1. Centralized processing of payables
2. Zero balance accounts
3. Delaying payment
4. “Play the float”
5. Less frequent playroll
Reducing the need for precautionary

balance
1. More accurate cash budgeting
2. Lines of credit
3. Temporary investments
Marketable Securities
Management
Objective of marketable securities management:
Reaslistically, management of cash and

marketable securities cannot be separated.
Management of one implies management of the
other.
Reasons for Holding Marketable

Securities
1. They serve as substitute for cash balance.
2. They are held as temporary investment.
3. They are built to meet up known financial
requirements.
Factors Influencing the Choice
of Marketable Securities
1.Risk such as
a. Default risk- the risk that the issuer of the
security cannot pay the principal or interest at due
dates.
b. Interest rate risk- the risk of declines in
market values of the security due to rising interest
rates.
c. Inflation risk- the risk that inflation will
reduce the real valur of investments.
d. Marketable (liquidity) risk- refers to the
risk that securities cannot be sold at closed to the
quoted market price and closelt related to liquidit
risk.
e. Event risk- the probability that some event
will occur and suddenly will increase firm’s default
risk.
2. Maturity - marketable
securities held for mature or
can be sold at the same time
cash is required.
3. Yield or return on
securities- Generally, the
higher a security’ risk, the
higher is required return.
Types of Marketable
Securities
1. Money Market Instrument
a. Discount Paper
b. Interest- Bearing securities
2. Treasury Bills
3. Other Short term Commercial Papers
Issued by Finance Companies, Banks, and
other Corporations.
4. Negotiable Certificates of Deposit
5. Repurchase Agreements
6. Banker’s Acceptance
7. Money Market Mutual Fund
Thank you !

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Chapter 12:

Cash and Marketable

Transaction Precautionary Compliance Investment

The optimal cash balance can be found by

1. The total cost of cash balances consist

2. The minimum costs of each cash

Other Factors Influences the Target Cash

1. Synchrinizing cash flows

Accelerating Cash Collections

1. Prompt billing and periodic statements

Reducing the need for precautionary

Reaslistically, management of cash and

Reasons for Holding Marketable

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