RABARA, Jhon Ray G.

BSMA 4A

1. What is the essence of Cash Management to overall business operations?

Cash is needed to pay for labor and raw materials, to purchase fixed assets, to pay taxes, to
service debt, to pay dividends, and so on, but cash itself and the money in most commercial checking
accounts earns no interest. Thus, the goal of the cash manager is to minimize the cash amount the firm
must hold for conducting its normal business activities while continuing to maintain a sufficient cash
reserve to take trade discounts, pay promptly and thus maintain its credit rating, and meet any
unexpected cash needs.
Firms hold cash for a primary reason, to compensate transactions, both routine and
precautionary. Cash balances are necessary in business operations. Payments must be made in cash,
and receipts are deposited in the cash account. Cash balances associated with routine payments and
collections are known as transactions balances. Cash inflows and out flows are unpredictable, and the
degree of predictability varies among firms and industries. Therefore, firms need to hold some cash to
meet random, unforeseen fluctuations in inflows and outflows. These “safety stocks” are called
precautionary balances, and the less predictable the firm’s cash flows, the larger such balances should
be.
A business cannot operate without cash. By generating enough cash, a business can meet its
everyday business needs and avoid taking on debt. That is why cash should be managed appropriately.
A such that cash management plays a vital role to the overall business operation as it helps the firm
maintain its financial stability to meet its daily needs for it to operate.

2. Is Cash Management related to Cash Flow Statement? Explain

A cash flow statement is a financial statement that summarizes the amount of cash and cash
equivalents entering and leaving a company. The primary purpose of the statement of cash flows is to
provide information about cash receipts, cash payments, and the net change in cash resulting from the
operating, investing, and financing activities of a company during the period.
Given this premise, we can say that Cash Management is related to Cash Flow Statement. The
cash flow statement is basically a report that shows how the entity managed the inflow and outflow of
its cash. It measures how well a company manages its cash position, meaning how well the company
generates cash to pay its debt obligations and fund its operating expenses.