Cashmanagement-WillametteUniversity.pptVIP

Cash Management Cash Cycle Factors that influence the desired level of cash Optimal cash inventories Short-term investment strategies Overview ST fin’l planning = deals w/ short-lived assets and liabilities (working capital management); concerned w/ 1) size of investment in CA like cash, A/R, Inventory…a tool is cash budget analysis and 2) how to finance ST assets…a tool is performing credit analysis Managing WC involves determing: How much to invest in CA? Our objectives Learn about the Cash Cycle Understand the factors that influence the desired level of cash Learn two models that calculate the optimal level of cash Gain an overview of what factors/areas are inputs to a cash budget and how they affect the cash balance Objectives of Public Money Managers Bringing the entity’s cash resources within control Achieving optimum conservation and utilization of the funds Key areas of Public Cash Management Organization Collection and disbursement of funds Netting of interagency payments Investment of excess funds Optimal level of cash balances Cash planning and budgeting Bank relations Treasury Management of Cash Balances Operate with smaller amount of cash Supervision is centralized Better service from banks Proper allocation of funds How much cash should a organization keep on hand? Enough cash to make payments when needed. (transactions motive) (Daily or Weekly Cash Budget helpful) Additional cash may be held for unexpected requirements. (precautionary motive) The size of the minimum cash balance depends on: How quickly and cheaply a organization can raise cash when needed. How accurately managers can predict cash requirements. (Cash Budget helpful) How much precautionary cash the managers need for emergencies. The organization’s maximum cash balance depends on: Available (short-term) investment opportunities e.g. money market funds, CDs, commercial paper Expected return on investment opportunities. e.g. If expected returns are high, organizations should