CASH AND MARKETABLE

SECURITIES MANAGEMENT

GROUP 8
INTRODUCTION
 OBJECTIVE OF CASH MANAGEMENT

1. Accelerate cash inflows by optimizing mechanisms for collecting cash

2. Monitor the cash disbursement needs or payment schedules
3. Minimize the amount of idle cash or funds committed totransactions amd
precautionary balances ; and
4. Avoid misappropriation and handling losses in the normal course of business
 PROPER MANAGING OF CASH FLOWS

• Improving forecasts of cash flows

• Using floats
• Synchronizing cash inflows and outflows
• Accelerating collections
• Controlling disbursement
• Obtaining additional funds when and where they are needed
 REASONS FOR HOLDING CASH
BALANCES

1. Transactions Facilitions
2. Precautionary Motive
3. Compliance with creditors convenant
 DETERMINING THE TARGET CASH
BALANCE

• Cash budget
• Cash Break-Even Chart
• Optimal cash balance using
a. Basmol Model
b. Miller-Orr Model
 OTHER FACTORS INFLUENCING THE
TARGET CASH BALANCE

1. Option to incur short-term borrowing to meet suspected demands for cash

2. Transactions cost and time element
3. Average minimum balances
 CASH MANAGEMENT TECHNIQUES

• Synchronizing cash flows- a situation in which inflows coincide with outflows

• Using
• Floats

- Float

- Disbursement float

- Collections float
• Accelerating cash collections

-Prompt billing and periodic statements

-Incentives such as trade and cash discounts

-Prompt deposit

-Direct deposit to firm’s bank accountant

-Electronic depository transfer or payment by wire

-Maintenance of regional colllection office

• Getting available funds to where they are needed
-Centralized processing of payables
-Zero balance accounts
-Delaying payment
-Play the float
-Less frequent payroll
• Controlling disbursement
-More accurate cash budgeting
-Lines of credit
-Temporary investments
MARKETABLE SECURITIES MANAGEMENT
 OBJECTIVE OF MARKETABLE
SECURITIES MANAGEMENT

• Management of cash and marketable securities cannot be separated

• The firm may hold excess funds in anticipation of a cash outlay
• Marketable securities which should be of highest investment grade usually
consist of treasury bills, commercial paper, certification of time deposits from
commercial banks, and money market notes.
 REASONS FOR HOLDING MARKETABLE
SECURITIES

1. They serve as a substitute for cash balances

2. They are held as a temporary investment
3. They are built up to meet known financial requirements
 FACTORS INFLUENCING THE CHOICE
OF MARKETABLE SECURITIES

1. Risks
a. Default risk
b. Interest rate risk
c. Inflanation risk
d. Marketability (Liquidity) risk
e. Event risk
2. Maturity
3. Yield or returns on securities
 TYPES OF MARKETABLE SECURITIES

1. Money Market Instruments 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 (REPOS)
6. Banker’s Acceptance
7. Money Market Mutual Fund