Concept And Meaning Of Cash Management

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The term 'cash' constitutes the most readily acceptable item of current assets to a firm. It includes currencies, coins, checks, and also some near cash items such as marketable securities and bank time deposits. Some items of cash such as currencies, coins checks are readily available in term of cash whereas, other items such as treasury bills, commercial papers and other marketable securities are readily convertible into cash. The finance manager must ensure that there is sufficient cash in the business. If there is excessive cash, the financial manager must seek to invest in low-risk highly liquid money market instruments that are conveniently convertible into cash. If there is inadequate cash the financial manager must manage it to avoid payment problem.
Cash is regarded as both input and output of a business operation. Cash serves as input in a sense that all business activities are carried on without any obstructions with the availability of cash. All business works begin with the provision of sufficient cash to do business. At the same time, the cash is the thing that a businessman ultimately wants to achieve through the sale of goods and services. Cash as a means and ends of business operation must be held in sufficient quantity. Holding of cash both in excess and insufficient amount may lead a firm to problems. Shortage of cash puts obstruction in the production process whereas excessive cash than requirement contributes nothing to the profitability of the firm as idle cash earns nothing. Therefore, a financial manager faces a challenge of maintaining optimum level of cash, which bypass the risk and also does not put negative impact on firm's profitability. The basic issue in cash management is to maintain adequate level of cash and investment of excess cash in low risk opportunities.
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