2. • Actual cash held by the firm & deposits that can be
withdrawn on demand
•
•
•
•
Coins & notes
Current accounts & ST deposits
Bank overdrafts & ST loans
Foreign currency & deposit
• Marketable securities

3. Transaction
Motive
Precautionary
Motive
Speculative
Motive
• Ensure bills are paid on
time
• Meet day-to-day operation
• Cover unexpected business
requirement
• e.g. strikes, weather
disruptions
• To exploit unanticipated
business / investment
opportunities
• Taking advantages of
bargains

4. • Refers to the practices & techniques designed to
accelerate & control collections, ensure prompt
deposit of receipts, improve control over payments
methods, eliminate idle cash balance

5. PROFITABILITY
• How the firm manages its cash in order to minimize costs &
maintain a return
LIQUIDITY
• Has enough cash to make payments when required
• Can turn other assets into cash to make payments
• Can borrow money to make payments
SAFETY
• Secure from theft, fraud.
• High risk

6. Managing
Cash
Balance
Surplus
Expected
Deficit
Expected
Reduce
spending
plans
Invest the
Surplus
How
much?
What to
invest?
How long
to invest?
Borrow
Loan of
overdraft?
How
much?
For how
long?

7. •
•
•
•
•
•
Preparation of cash budget
Managing collection & payment of cash
Management of ST cash investment
Management of overdraft & loans
Use of cash management model
Centralized or decentralized Treasury Department

8. • Essential for control day-to-day cash balance & to allow
efficient forward planning of the options.
• Integral part of the master budget of the business

9. COLLECTION
Presented the
cheque on the
day of receipt
Collecting
cheque from
customer’s
premises
Requesting
payment
through Bank
Giro System,
standing order
& direct debit
PAYMENT
Slow down
payment

10. SECURITY
INTEREST
PURPOSE
DURATION
Factors to
be
considered

11. Attempt to minimize the total costs by determining when, &
how much cash should be transferred each time
Too much cash
Loss
opportunity to
earn return
Too little cash
Risk of not
making
payment timely
How much to
hold cash?

12. • Is based on the idea that deciding on optimum cash
balance.
Q
•
•
•
•
2 FS
i
S – the amount of cash to be used in each time period
F – the fixed cost of obtaining new funds
i – the interest rate of holding cash
Q – the total amount to be raised

13. • Introduced by William Baumol
• Assumption:
•
•
•
•
•
•
Able to forecast cash need with certainty
Cash payments occur uniformly over a period of time
No cash receipts during the projected period
No safety reserve
Opportunity costs of holding cash is known & fixed
Incur the same transaction costs

14. Transaction cost – cost of liquidating ST investment
e.g. brokerage fees, delivery costs, telephone charges
Opportunity cost – interest rate foregone on cash surplus

15. Is concerned with the activities involved in managing the liquidity of a
business – survival & growth of the business

16. Large & multinational companies
• Transactions will be very complex & large scale
Companies are involved in currency, debt
& security markets
Business transactions are becoming very
sophisticated
• Can be aided by modern communications – treasury
dept’s staff are equipped to handle

17. • Avoid duplication
of skills
• Lower interest rate
• Efficient FOREX
management
• Greater autonomy
• Match local assets
ADVANTAGES
DISADVANTAGES