ZEESHAN KHAN ROLL NO 25 SECTION A Consequently, we concentrate only on the transactions and precautionary motives of the firm, with these needs being met with balances held both in cash and in marketable securities. It is necessary to obtain frequent report, generally day byr day, on cash balances in each and every company’s bank account, on cash disbursements, on average daily balances, and on the marketable securities position of the firms as well as a detailed reports on changes in this position. John Maynard Keynes suggested three reasons for the individuals to hold cash. 1. Keynes labeled these motives as follows: transactions, speculative, and precautionary. All the information is essential if the firm is to manage its cash in an efficient manner – one that provides for safe and convenient cash availabilities and for reasonable investments income on the temporary investments of cash. In addition to the cash budget, the firm needs systematic information on cash as well as some kind of control system. Precautionary motive: to maintain a safety cushion or buffer to meets the unexpected cash needs. The increase predictable the inflows and outflows of cash for a firm, the low cash that needs to be held for precautionary needs. It is important to point out that not all of the firm’s needs for cash call for holding cash equal exclusively. The second and third item in the preceding lists collectively represent collection float, the total time between the mailing ... ... middle of paper ... ...ng consideration. Outsourcing – shifting an ordinarily “in-house” operation to an outside company – is not new idea when its comes to cash management.The increase in interest rates available on marketable securities, of course the greater will be the opportunity cost to maintaining idle cash balances. The optimal level of cash would be the larger (1) the transactions balances required when cash management are efficient,or (2) the compensating balances requirements of the commercial banks with which the firm have deposit accounts. Also, the higher the interest rate, the greater will be the opportunity cost of holding cash, and the greater the corresponding desire to decrease the firm’s cash holdings, all other things are the same. They dont want to maintain excess cash balances because interest can be earned when the funds are invested in marketable securities.
Also, it means that the company has to keep less working capital for its current assets and can manage its cash flow more efficiently.
Cash ratio – Big drop (from .35 to .087) in year 2002. In 2003 the rate grew from .087 to .460. The reason of drop in 2002 is decreased in Cash and big increase in Liabilities. The increase in 2003 occurs because of big increase in Cash and slight increase in Liabilities.
They are legally investing their money from the accrued pre-need revenues. The fact that they are allowed to invest these revenues allows them to create more money...
In regards to the corporation’s balance sheet, it is necessary to place an importance on liquidity ratios to demonstrate the company’s ability to pay its short term obligations such as accounts payable and notes that have a duration of less than one year. These commonly used liquidity ratios include the current ratio, quick ratio, and cash ratio. All three ratios are used to measure the liquidity of a company or business. The current ratio is used to indicate a business’s ability to meet maturing obligations. The quick ratio is used to indicate the company’s ability to pay off debt. Finally the cash ratio is used to measure the amount of capital as well short term counterparts a business has over its current liabilities.
Cash management has several weaknesses regarding segregation of duties. The office secretary should not receive the cash and prepare the cash listing and conduct the daily deposit. These duties should be split up so that the secretary cannot misstate the amount of cash received and be able to falsify cash receipts and daily deposits.
“People also hold money to meet unplanned or unexpected purchase and emergencies which is called precautionary demand” (350). Interest rates affect the amount of money people wish to hold in these funds. “The higher the interest rate, the lower the precautionary money balances become” (350).
This is where the cash flow reaches its peak but also at the point of
The Quick Ratio shows that the company’s cash and cash equivalents are the highest t...
If you receive cash you are likely to save it and put it in the bank. Thus, what a business sacrifices by having to wait for the cash inflows is the interest lost on the sum that would have been saved.
It should be pres... ... middle of paper ... ... o monitor the health of the company and also to make the right choices. They are the most important users of financial information as without this group using the information properly the company could cease to survive. Bibliography Biz/ed 2004, Accounting [Online], available http://www.bized.ac.uk Duncan Williams 2004, User of Financial Statements, [online], available http://www.duncanwill.co.uk Finance Demon 2004, User of Financial Information, [online], available http://www.financedemon.co.uk Financial Reporting Council 2004, About the FRC [online], available http://www.asb.org.uk Hacker Young Chartered Accountants 2004, Accounts Explained [online], available http://www.account-explained.co.uk Joe Corbett 2004, Class Notes, Borders College, Galashiels
Many organizations have maximized the use of cash on hand by effective cash management techniques and the use of short-term financing. This paper will discuss various cash management techniques and short-term financing methods used by organizations.
Managing an organization’s financial operation requires a good understanding of the economy and ways to maximize revenue. For an organization to operate on a daily basis, adequate cash flow is required. Poor cash management within an organization might make it hard for the organization to function because there may be shortage of cash in case of inconsistences in the market. In most companies, management is interested in the company 's cash inflows and outflows because these determines the availability of cash necessary to pay its financial obligations. Management also uses this information to determine problems with company’s liquidity, a project’s rate of return or value and the timeliness of cash flows into and out of projects (used as inputs
Nowadays with the implementation of new emerging technologies, the way businesses keep this financial information has become computerised. At the moment businesses use computers with a computerised accounting system in order to perform many other new activities than what they were able to do in the past. Businesses can access financial information from different department in the organisation, access to the information through computers and find financial data very fast, being more efficient. (Beliss, 2013)
The old saying, “It takes money to make money” hold true for individuals as well as corporations. There are times when companies foresee how certain investment projects necessitate the need to raise capital either through corporate loans or the sale of company stocks or bonds in order to position for future supply and demand. If the company is considered to have good value, then there are plenty of investors willing to provide funds for those investment projects, but not without costs to the company known as capital costs or cost of capital. These costs associated with the use of outside funds have financial implications regarding company profits needed to meet investors and owners return expectations while maintaining good value. Before a company can make a financial decision to increase outside funds, they must first calculate the costs that will be incurred by the company to acquire those funds. If a company decides to sell common stock to raise capital, the costs to the company ...
All accounting reports are shared by all levels of accounting managers. The management of the information which at the accounting department is one of the most important factors in determines the effectiveness and efficiency of the department. The information that gathers included the invoice, account document, payment, draft, banking document and etc. It is important to ensure the validity and the accuracy of the information that provided to the department.