Malaya Journal of Matematik, Vol. S, No.

2, 2904-2910, 2020

[Link]

A study on cash management

Sarumathi 1 and S. Praveen Kumar 2

Abstract
In a business anything done financially affects cash eventually. Cash is to a business is what blood is to a living
body. A business cannot operate without its life-blood cash, and without cash management, there may remain no
cash to operate.
Keywords
Business, cash management, finance, cheques
1,2 Department of Management Studies, Bharath Institute of Higher Education and Research, Selaiyur, Chennai-600073, Tamil Nadu, India.
Article History: Received 01 October 2020; Accepted 10 December 2020 c 2020 MJM.

Contents 2) To provide for schedule major payment i.e. Capital

expenditure.
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2904 3) To face unexpected cash drain.
2 Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2904 4) To maintain image of credit worthiness.
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2909 5) To size potential opportunities for profitable long- term
investments.
6) To meet requirement of bank relationships.
1. Introduction
Efficient cash management function calls for cash plan-
Cash is an important current asset for the operation of the ning, evaluation of cash benefits and cost of policies, sound
business. Cash is the basic input needed to keep the business procedures and practices and synchronization of cash inflows
running on a continuation basis. It is also the ultimate output and outflows. Thus for achieving goals and objectives of cash
realized by selling the services or product manufactured by management, finance manager has to plan cash needs of the
the firm. Cash is the most liquid of all the current assets. firm followed by cash flow management, determination of
Higher cash and bank balance indicate high liquidity position optimum level of cash and finally investment of surplus.
in lower profitability, as ideal cash fetches no return. Thus Factors affecting cash requirement:
a major function of finance manager is maintain sound cash (A) Internal Factors
position. (a) Profit level
Cash is the money which a firm can disburse immediately (b) Dividend and Taxation policy
without any restriction. The term cash includes coins, cur- (c) Reserve and surplus
rency and cheques held by the firm, and balances in its bank (d) Depreciation policy
accounts. Sometimes near-cash items, such as marketable (e) Expansion programme
securities or bank times deposits, are also included in cash. (f) Operating efficiency
The basic characteristic of near-cash assets is that they can
External Factors
readily be converted into cash. Generally, when a firm has
(a) Fluctuating in marketing interest rates
excess cash, it invests it in marketable securities. This kind of
(b) Investment avenues available in market
investment contributes some profit to the firm.
(c) Government economic policies
Cash management is concerned with managing of:
(d) Rules and regulations of RBI and other regulatory
1. Cash flow in and out of the firm.
bodies
2. Cash flow within the firm.
Cash management service generally offered
3. Cash balance held by the firm at a point of time by
financing deficit or investing surplus cash. The following is the list of services generally offered by
the companies;
Optimum utilization of operation cash:
2. Objectives
Implementation of a sound cash management programme
1) To meet day to day business requirements. is based on rapid generation, efficient utilization and effec-
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tive conversation of its cash resources. Cash flow is a circle. to convert immediately into value or goods. A receivable,
The quantum and speed of the flow can be regulated through an item to be converted in the future, often is subject to a
prudent financial planning facilitating the running of business transaction delay or a depreciation of value. Once funds are
with the minimum cash balance. This can be achieved by due to the Government, they should be converted to cash-in-
making a proper analysis of operative cash flow cycle along hand immediately and deposited in the Treasury’s account as
with efficient management of working capital. soon as possible.
Cash forecasting: 3. To properly time disbursements : Some payments must
Cash forecasting is backbone of cash planning. It fore- be made on a specified or legal date, such as Social Security
warns a business regarding expected cash problems, which it payments. For such payments, there is no cash management
may encounter, thus assisting it to regulate further cash flow decision. For other payments, such as vendor payments, dis-
movements. Lack of cash planning results in spasmodic cash cretion in timing is possible. Government vendors face the
flows. same cash management needs as the Government. They want
Cash management techniques: to accelerate collections. One way vendors can do this is to
Every business is interested in accelerating its cash collec- offer discount terms for timely payment for goods sold.
tions and decelerating cash payments so as to exploit its scarce Motives for holding cash
cash resources to the maximum. There are techniques in the The firm’s need to hold cash may be attributed to the
cash management which a business to achieve this objective. following the motives:
Liquidity analysis: • The transactions motive
The importance of liquidity in a business cannot be over • The precautionary motive
emphasized. If one does the autopsies of the businesses that • The speculative motive
failed, he would find that the major reason for the failure • Transaction Motive
was their inability to remain liquid. Liquidity has an intimate The transaction motive requires a firm to hold cash to
relationship with efficient utilisation of cash. It helps in the conducts its business in the ordinary course. The firm needs
attainment of optimum level of liquidity. cash primarily to make payments for purchases, wages and
Profitable deployment of surplus funds: salaries, other operating expenses, taxes, dividends etc. The
Due to non-synchronization of ash inflows and cash out- need to hold cash would not arise if there synchronization
flows the surplus cash may arise at certain points of time. If between cash receipts and cash payments, i.e., enough cash
this cash surplus is deployed judiciously cash management is received when the payment has to be made. But cash
will itself become a profit centre. However, much depends on receipts and payments are not perfectly synchronized. For
the quantum of cash surplus and acceptability of market for those periods, when cash payments exceeds cash receipts,
its short-term investments. the firm should maintain some cash balance to be able to
Economical borrowings: make required payments. For transactions purpose, a firm
Another product of non-synchronisation of cash inflows may invest its cash in marketable securities. Usually, the
and cash outflows is emergence of deficits at various points of firm will purchase securities whose maturity corresponds with
time. A business has to raise funds to the extent and for the some anticipated payments, such as dividends, or taxes in the
period of deficits. Raising of funds at minimum cost is one of future. Notice that the transactions motive mainly refers to
the important facets of cash management. holding cash to meet anticipated payments whose timing is
Purpose of cash management: not perfectly matched with cash receipts.
Cash management is the stewardship or proper use of an Precautionary motive:
entity’s cash resources. It serves as the means to keep an The precautionary motive is the need to hold cash to meet
organization functioning by making the best use of cash or contingencies in the future. It provides a cushion or buffer
liquid resources of the organization. to withstand some unexpected emergency. The precautionary
The function of cash management at the U.S. Treasury is amount of cash depends upon the predictability of cash flows.
threefold:- If cash flow can be predicted with accuracy, less cash will be
1. To eliminate idle cash balances: Every dollar held as maintained for an emergency. The amount of precautionary
cash rather than used to augment revenues or decrease ex- cash is also influenced by the firm’s ability to borrow at short
penditures represents a lost opportunity. Funds that are not notice when the need arises. Stronger the ability of the firm to
needed to cover expected transactions can be used to buy back borrow at short notice, less the need for precautionary balance.
outstanding debt and cease a flow of funds out of the Treasury The precautionary balance may be kept in cash and marketable
for interest payments) or can be invested to generate a flow of securities. Marketable securities play an important role here.
funds into the Treasury’s account. Minimizing idle cash bal- The amount of cash set aside for precautionary reasons is not
ances requires accurate information about expected receipts expected anything; therefore, the firm attempt to earn some
and likely disbursements. profit on it. Such funds should be invested in high-liquid and
2. To deposit collections timely : Having funds in-hand is low-risk marketable securities. Precautionary balance should,
better than having accounts receivable. The cash is easier thus, more in marketable securities and relatively less in cash.

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Speculative motive: come generated by accrual accounting. When Net Income is

The speculative motive relates to the holding of cash for composed of large non-cash items it is considered low quality.
investing in profit-making opportunities as and when they • To evaluate the risks within a financial product. E.g.
arise. The opportunity to make profit may arise when the matching cash requirements, evaluating default risk, re-investment
security prices change. The firm will hold cash, when it is requirements, etc.
expected that the interest rates will rise and security prices Cash flow is one of the most important aspects of running
will fall. Securities can be purchased when the interest rate any business - large or small. It is one of the single most
is expected to fall; the firm will benefit by the subsequent important reasons why many businesses fail - regardless of
fall in interest rates and increase in security prices. The firm how good the business is. Managing cash flow therefore is
may also speculate on materials’ prices. If it is expected that vitally important in the smooth running, survival and success
materials’ prices will fall, the firm can postpone materials’ of a business. This activity will look at what cash flow is,
purchasing and make purchases in future when price actually and use some examples to show how cash flow can make
falls. Some firms may hold cash for speculative purposes. By the difference between success and failure. Failure in this
and large, business firms do not engage in speculations. Thus, case means insolvency. If you are insolvent then you are
the primary motives to hold cash and marketable securities unable to pay your debts. We often use the term ’bankrupt’ to
are: the transactions and the precautionary motives. describe this but strictly, only an individual can be declared
Cash flow statement: bankrupt. Companies are declared as insolvent. The principle
In financial accounting, a cash flow statement or state- however is the same. Some firms deal with so- called ’personal
ment of cash flows is a financial statement that shows how insolvency’ which effectively means bankruptcy so the use
changes in balance sheet and income accounts affect cash of the terms can sometimes be confusing!. Business success
and cash equivalents, and breaks the analysis down to oper- might not be determined by how many customers you have,
ating, investing, and financing activities. As an analytical the quality of your product, the price or many other things - it
tool, the statement of cash flows is useful in determining the might be down to a simple case of managing your cash flows!
short-term viability of a company, particularly its ability to Cash flow should not be confused with ’profit’ - these are two
pay bills. International Accounting Standard 7 (IAS 7) is different things. Profit refers to the difference between the
the International Accounting Standard that deals with cash total revenue (TR) and total cost (TC) over a period of time.
flow statements. The success, growth and survival of every Cash management in cameo
reporting entity depend on its ability to generate or otherwise Cash does not enter into the profit and loss account of
obtain cash. Cash flow is a concept that everyone understands enterprise, hence cash is neither profit nor loss, but without
and with which they can identify. Reported profit is important cash profit remains meaningless. Profit is a liability and cash
to users of financial statements, but so too is the cash flow is the real thing which is used for payment of obligations.
generating potential of an enterprise. What enables an entity Creditors and other expenses cannot be paid unless profit is
to survive is the tangible resource of cash not profit, which is realized in to cash.
merely one indicator of financial performance. A cash flow Cash and profit distinction is often not understood clearly.
statement (CFS) is important to external users, and should be It is not correct to say that companies making good profit
of significant importance internally as well. Cash flow refers does not having working capital problem. The problem is
to the movement of cash into or out of a business, or project, more acute for companies which are growing at a fast rate.
or financial product. It is usually measured during a specified, The raise in profit gives an euphoric feeling of all being will
finite period of time. Measurement of cash flow can be used. everywhere. But the real cash position of the company which
• To determine a project’s rate of return or value. The might be showing a downward trend and hence, pushing the
time of cash flows into and out of projects are used as inputs company slowly to severe liquidity crisis despite the company
in financial models such as internal rate of return, and net making high profit.
present value. There is nothing wrong in making profit, in fact, that is the
• To determine problems with a business’s liquidity. Be- purpose of business, but. Unless there is cash coming through
ing profitable does not necessarily mean being liquid. A profit, a company will soon be dead. Cash is the lifeline of
company can fail because of a shortage of cash, even while an organization. A sustained growth of a company depends
profitable. As an alternate measure of a business’s profits upon the cash ability of the profit, not the profit in the profit
when it is believed that accrual accounting concepts do not and loss account.
represent economic realities. For example, a company may Cash is like any other asset should not be kept ideal. Un-
be notionally profitable but generating little operational cash less it is put in to use it will not only stops earning, but will
(as may be the case for a company that barters its products give negative return.
rather than selling for cash). In such a case, the company may The presentation of the cash flow can be of following:
be deriving additional operating cash by issuing shares, or 1. Operating activities to cover cash flows relating to all
raising additional debt finance. revenue generating activities of the company.
• Cash flow can be used to evaluate the ’quality’ of In- 2. Investing activities to cover cash flows arising from sale

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pf fixed assets. Cash flows relating to investments in equity, Primary data is collected with consultation and discussion
cash advances and loans including their repayments. with the concerned staff. The company whenever requires
3. Financing activities to cover cash flows arising out of all funds they arrange the funds from the internal sources. They
capital and debt issues of the enterprise including repayment arrange the funds from customer advance. The company
of loans. By analyzing the Cash flow of Cameo from their mostly does not borrow funds from the banks. Whenever the
profit and loss account the following results are arrived : company receives the money from the debtors they simul-
Table -1. Analyzing the Cash flow of Cameo from their profit taneously pay to their creditors. The company has proper
and loss account balances between the inflow and outflow of the funds through
the debtors and creditors.
These include the survey or questionnaire method, as well
as the personal interview methods of data collection.
Research Design
The design for this study is basically analytical because it
utilize the large number of data of the Company
Sample size: 100
Type of sample
Sampling refers to the method of selecting a sample from
a given universe with a view to draw conclusions about that
universe. A sample is a representative of the universe selected
Objectives of the study for study.
Objective: Secondary Data
1. The purpose of preparing a cash flow projection is to It was collected from the P&L Ac, balance sheet, refer-
determine shortages or excesses in cash from that necessary to ence books based on financial management & management
operate the business during the time for which the projection accounting. The various books helped in understanding the
is prepared. various theoretical concepts associated with the project such
2. If cash shortages are revealed in the project, financial as the significance of Cash flow management & the way to in-
plans must be altered to provide more cash until a proper cash terpret various funds. All the figures required to carry out the
flow balance is obtained. ratio analysis were gathered from financial statements such as
3. Ways to reduce the amount of cash paid out includes P&L Ac,
having less inventory, reducing purchases of equipment or Balance sheet of the company :
other fixed assets, or eliminating some operating expenses. 1. Data collected from members of Cameo Ltd.
4. If excesses of cash are revealed, it might indicate ex- 2. Data collected through questionnaires.
cessive borrowing or idle money that could be ”put to work”. 3. Data collected through telephonic conversation.
The objective is to finally develop a plan which, if followed, 4. Data collected from various books.
will provide a well-managed flow of cash. 5. Data collected from internet
Scope of the study Since the analysis was of the various cash flow activities,
The purpose of preparing a cash flow project is to deter- the important tool of data analysis are cash flow statement
mine shortages or excesses in cash. and ratio analysis. Tables and graphs were prepared to have a
1. Ways to reduce the amount of cash paid out includes clear understandings of the subject, the tables were put into
having fewer inventories, reducing purchases of equipment or graphs to make more understandable
other fixed assets, or eliminating some operating expenses. Review of literature
2. The objective is to finally develop a plan which, if Cash flow is the oxygen that brings your business to life.
followed, will provide a well- managed flow of cash. As surely as you cannot live with out air, a business will grind
3. It involves the study of the existing pattern of cash flow to a halt if starved for cash.
management in the organization. Cash Management is concerned with the management
4. Understand the types of transactions that result in cash of collections and disbursement of cash, determination of
flows from operating, investing, and financing activities. optimum level of cash and investment of surplus cash into
5. To know the financial soundness of the company. securities. Cash management includes management of cash
6. Develop an ability to analyze the statement of projected inflow, cash outflow, estimation of cash requirement, ascer-
cash flows, including the relation among cash flows from taining cost of managing cash, techniques of managing cash.
operating, investing, and financing activities for businesses in Cash management also includes management of cash as
various stages of their growth. well as cash equitant i.e. Bank accounts etc. Cash manage-
Research Methodology ment is done because all the transactions in the business in
Primary Data done in cash, so there is need for estimation of cash in future

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for smooth running of the business. So cash management is payment products because these methods of payment can be
very important for every organization. incorporated into firm-wide computing systems.
If at any time, because of a lack of cash, a corporation The new forecasting techniques also suggest use of elec-
fails to pay an obligation when it is due, the corporation is tronic payments, because they offer disaggregated revenue
insolvent. Insolvency is the primary reason firms go bankrupt. and spending data that can easily be categorized and studied.
Obviously, the prospect of such dire consequence compels Electronic payments and cards provide control over incoming
companies to manage their cash with care. Moreover, ef- funds, and allow companies to limit access to these funds to
ficient cash management means more than just preventing authorized parties. In addition, limiting corporate purchases
bankruptcy. It improves the profitability and reduces the risk to electronic payments makes it easier for firms to monitor
the firm is exposed to. cash out flows and prevent unauthorized expenditures, be-
A successful business rests on sound record keeping prac- cause these payments are easier to document and provide an
tices and solid cash flow. Without good records it is impos- audit trail.
sible to determine the financial condition or profitability of a Business Benefits
business. Similarly, in order to survive a small business must Generation of Fee-based Income
achieve a positive cash flow in the long term. This Financial Finacle’s features such as wire initiations, liquidity man-
Guide provides the basic information the owner of a small agement, alerts, cross border payments and positive pay offer
business need to establish good record keeping practices in a consistent stream of fee-based revenues. The customer re-
your business and to minimize cash flow problems Web-based lationship management capabilities embedded within these
Cash Management. systems also enable targeted marketing, leading to greater
Finacle web-based cash management solution enables opportunities for cross-selling and a higher fee income.
banks to offer comprehensive cash management services to Business Agility
businesses, ranging from small enterprises to large corporate Built on industry standard platforms J2EE and .NET, the
houses. Built on new-generation industry standard technolo- solution provides banks with tremendous flexibility to extend
gies J2EE and .NET, the modular solution provides corporate their product portfolio and customize the solution according
customers anytime, anywhere access to real-time consolidated to requirements. The architecture of the solution enables the
information. It manages cash positions and electronically bank to write business rules once and deploy anywhere, add
sends and receives funds in a secure manner, within and across new rules, modify existing ones or integrate with other ap-
borders. plications seamlessly. The solution also provides an addition
The solution is multi-currency enabled and offers multilin- allayer that can be extended to interface with multiple back
gual support. It is also designed to support multiple channels office systems. All this enhances agility of operations, helping
including the Internet and mobile, and can be inter faced with the bank identify new opportunities and roll out new products.
disparate host systems and third-party applications. Cost Savings
Key Offerings : Thin-client architecture over the Internet reduces the cost
• Balances and Transaction Information of maintenance associated with frequent upgrades and sup-
• Electronic Invoice Presentment and Payment port. The deployment of Finacle enables a cost-effective
• Payables Management channel through which to serve customers. As the number of
• Receivables Management transactions completed on-line increases, the number of more
expensive branch transactions decreases. This is especially
• Liquidity Management and Reconciliation Reporting
true of small business customers who tend to use the branch
• Trade Finance as their primary channel. Greater automation and productivity,
Additional Features as well as reduced human error, further lead to increased cost
• Alerts savings.
• Infrastructure Increased Customer Satisfaction
• Security Cash Management Basics :
Corporate Cash Management to benefit from Electronic Cash is your business’s lifeblood. Managed well, your
Payments company remains healthy and strong. Managed poorly, your
The new electronic payment products and services offer company goes into cardiac arrest.
the corporate clients an improved bottom line by helping If you haven’t considered cash management an important
manage cash requirements. It helps corporate to make the issue, then you’re probably undermining your business’s short-
best use of their funds and provides an effective means of term stability and its long-term survival. But how can you
managing their financial requirements. manage business cash better?
Several of the trends in cash flow forecasting favor the use Start with understanding how good cash-management
of electronic payment products like RTGS, Electronic Funds practices can influence your company’s growth and survival
Transfer (EFT) and card payments. Improved technology and by reading ”The Art of Cash Management, ”Inc FinanceEditor
systems integration makes it more attractive to use electronic Jill Andresky Fraser’s classic article on the topic. Then dive

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into forecasting your business-cash needs and learning how income of the company and they budget accordingly.
to handle a cash crisis. Assembled here are practical pieces of 6.) Company manages its cash well and spending large
advice, tips and tricks from CEOs, and tools that you can use amount of funds for its cash management system.
to get a handle on business cash. 7.) Company is investing its funds in long term invest-
Steps to a Healthy Cash Flow ments which will be helpful to the company for long further
Healthy cash flow is essential to the success of a small growth.
business. You may have the best service or product around, 8.) Company is on growth and there is further scope of
your employees and customers may love you, your office future growth.
may be well organized, but if you don’t have the money to 9) In the cash flow statement shows the frequent growth
buy inventory or pay bills, you can’t keep your business run- of the cash in each year that shows the company in the good
ning. Many business owners make the mistake of believing position.
cash flow is largely out of their control. On the contrary, the 10.) Net working capital also shows the good results.
following steps can really help. Suggestions
1. Analyze your financial condition 1.) Company can review existing service providers for
Financial analysts, credit providers and knowledgeable cash management and other service providers, making initial
investors rely heavily on financial ratios to judge the health of presentations and discussions with banks and providers. Com-
a company. You should use these tools as well. Commonly panies can shortlist potential providers for further in-depth
used ratios can help you analyze your pricing strategy, level of discussions and presentations. It helps in reducing carrying
overhead, liquidity, the health of your cash flow, your average cost of cash.
collection period, the appropriateness of your collection terms 2.) Company can invest idle funds wisely may help you to
and your inventory turnover rate. generate income from your working capital, increasing your
2. Improve your cash management yields while maintaining liquidity. There are a wide variety
When it comes to the cash flowing through your financial of investment instruments available to companies seeking a
accounts, your goals should be to ensure that incoming funds return on excess cash. However, there are ways company may
spend as much time as possible earning interest or dividends be able to improve yields on our idle working capital.
for your benefit and that outgoing funds are available when 3.) For better cash management or in order to find mini-
needed. With a traditional business checking account, meeting mum cash balance required for the company can use control
these seemingly simple goals can be a complex task. You will charts with the help of this company will able to invest its
have to move funds manually into a separate money market excess amount of funds in short term securities and can reduce
account in order to earn interest or dividend income and back bank charges charged by the bank for overdraft purpose.
into your checking account to cover disbursements when due. 4.) Company is going in the right path, if they maintain
An alternative is a central asset account, which combines the same level and improve the current level scope for the
traditional checking features, investment and borrowing into further development for the future.
a single account. A central asset account saves you time and 5.) Company is on growth and there is scope for further
effort by automatically putting your cash where it needs to scope
be, when it needs to be there. And by keeping your cash in Conclusion
interest-bearing accounts right up until the moment disburse- The cash flow statement shows that net increase in cash
ments clear your account, a central asset account can also help generated from operating and financing activities is much
increase your return and your bottom line. more than the previous year but cash from investing activities
is negative in both year. There is increase of Rs.851324604.
Findings and suggestions
in Increase in cash & cash equivalents from previous year.
Findings
Therefore analysis of cash flow statement shows that cash
1.) In cameo corporate services maintains the effective
inflow is more than the cash outflow in CAMEO LTD.
cash flow so there is good possibilities for the future develop-
The company’s overall position is at a good position. Par-
ment.
ticularly the current year’s position is well due to raise in the
2.) The financial experts of this have very keen to plan a profit level from the last year position. It is better for the
budget in any other company and they spend lot of time on it organization to diversify the funds to different sectors in the
so the finance should be very effective. present market scenario.
3.) The company assigned themselves the good financial
goals and they follow it very effectively so there is expenses
are monitored effectively. References
4.) The financial systems are centralised in the company [1] Besterfield Dale H, Besterfield-Michna Carol, Bester-
so the every one in the company can know the company where fieldGlen H. and Besterfield-Sacre Mary, Total Quality
its stands. Management, Pearson Education, 2008.
5.) The financial reports are used by the management [2] Jaisankar, Operations Research: Decision Model Ap-
frequently so that the know how to monitor the expenses and proach, Excel Books, 2009.

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[3] Janat Shah, Supply Chain Management-Text and cases,

Pearson Education, 2010.

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ISSN(P):2319 − 3786
Malaya Journal of Matematik
ISSN(O):2321 − 5666
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