G floods increase in cost of raw materials etc

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Unformatted text preview: services rendered to the business firm for 27 Cash Management Models: Baumol’s Model: EOQ management of cash C= sqrt (2FT) C= I where, C= Optimal transaction size where, F= Fixed Cost per transaction F= T= Estimated cash payments during the period I= Interest on marketable securities per annum Limitation- Too much uncertainty when trying to Too predict what the return will be. 1. 28 2. Miller- Orr Model: 2. Miller Upper Control Limit (UCL)- Marketable securities are bought- Decided with the help of a formula are Lower Control Limit (LCL)- Marketable securities are sold- Decided by management are 29 UCL= 3RP- 2LCL where, RP= Return Point RP= 3 sqrt(3bδ2) RP= sqrt(3b 4I where, RP= Return Point b= Fixed Cost per order for converting marketable securities into cash I= Daily interest on marketable securities δ2= Standard Deviation – Variance of daily 2= changes in expected cash balance 30 Objectives of Cash Management: Meet cash disbursement needs Minimize funds held in the form of cash balance To prevent bankruptcy Good relation with bank, trade creditors and Good suppliers suppliers To have strong credit rating To meet unexpected cash expenditure To maintain balance level 31 Cash Budget: It It is a statement showing the estimated cash inflows over a period of time. inflows It shows the net cash position (surplus or It deficiency) of a firm as it moves from one budgeting period to another. budgeting It is a device to help a firm plan and control the It use of cash. use 32 Various purposes of Cash Various Budget: Budget: To co-ordinate the timings of cash needs It pinpoints the period when there is likely to be It excess cash excess Enables a firm to take advantage of cash Enables di...
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