CASH

&
MARKETABLE SECURITIES
MANAGEMENT
 MOTIVES FOR HOLDING CASH
John Maynard Keynes suggested 3 reasons:

Transactions
motive

Precautionary Speculative
motive motive
 METHODS TO
IMPROVE
CASH
MANAGEMENT
EFFICIENCY

Speeding Slowing
up cash down cash
receipts payouts
 SPEEDING UP
CASH RECEIPTS

Vaibhav Chaudhary
MBA-Tech Manufacturing(Mumbai)
 SPEEDING UP CASH RECEIPTS

Methods of speeding up cash receipts:

Collections Concentration
Banking
 COLLECTIONS

Methods to speed up the collection process:

Collection Earlier
float Billing
 A time-line explanation of the collection float and its components

Customer Firm Firm Firm’s bank

mails cheque receives cheque deposits cheque Account credited

Mail float: Processing float: Availability float:

Time the cheque Time it takes a Time consumed in
is in the mail. Company to process the clearing the cheque
cheque internally. Through the banking
System.
Deposit float: Time during which the cheque
received by the firm remains uncollected
funds
Collection float: Total time between the mailing of the cheque by
The customer and the availability of cash to the receiving firm.
 CONCENTRATION BANKING
3 principle methods to move funds between banks:

• Depository transfer checks(DTC)

• Automated clearinghouse(ACH) electronic transfer

• Wire transfer
 EFFECTS OF CASH CONCENTRATION

It improves
control over It allows for
inflows and It reduces more
outflows of idle balances effective
corporate investments
cash
SLOWING DOWN
CASH PAYOUTS

Siddharth Devnani
MBA-Tech Manufacturing(Mumbai)
 SLOWING DOWN CASH PAYOUTS

• Cash management-
– Collection,
– Disbursement,
– Temporary Investment of cash.

• Aim of cash management is to hold cash for a longer

period.

• Motives to hold cash.

– Speeding up cash receipts is just one side of the coin.
– Slowing down payouts is as important to hold cash.
 HOW AND WHY TO SLOW DOWN PAYOUTS?
Solution 1:
• Strategically delay all disbursements.
• Make a payment towards the end of the credit
period.
• Payment should be released just before-
1. It causes you to pay a penalty for late payment.
2. It will damage goodwill and reputation as far as credit
standing is concerned.
 HOW AND WHY TO SLOW DOWN PAYOUTS?
Solution 2:
• The balance in the account from which
disbursements are made should be ideal, not idle.
• Ideal case is never possible.
• But closer the cash management system is to ideal,
more you are making your money make profits for
you.
 HOW AND WHY TO SLOW DOWN PAYOUTS?
Solution 3:
• Dividends and salaries are not instantly encashed.
• Trend of number of days taken for depositing of
cheques should be observed.
• Accordingly, in the future, funds need not be put in
the account at once.
• Strategically transfer funds into payroll and
dividend account according to prediction/trends
 HOW AND WHY TO SLOW DOWN PAYOUTS?
Solution 4:
• Choosing geographically remote banks.
• This increases the net float available.
• There is a delay between making a check and
account being debited.
• This is exploited and increased.
• It is highly unethical. It will tarnish image and
reduce goodwill
• It may also be illegal
ELECTRONIC
COMMERCE
-Abbas Sheik Dawood
MBA-Tech IT(Shirpur)
 ELECTRONIC COMMERCE

Business information
in electronic format

Computer networks
emphasis

Paper system
Alternative
 E- COMMERCE..

Transfer of biz Computer

Electronic Data
info in transfer +
Interchange
computer Physical
(EDI)
readable format Transfers
 COST & BENEFITS

Benefits Cost

Faster Cash & info

Hardware + Software
movement; reliable

Reduces mail, doc &

Train Personnel
storage

Convince Supplier &

Better cash forecasting
Client network for
& mgmt
changing

Eliminates float Float Elimination!!

 INDIAN SYSTEMS FOR E-COMMERCE

NEFT RTGS

CTS
(only in
ECS
Delhi as
of now)
OUTSOURCING

Bhavuk Chandak
MBA-Tech IT(Shirpur)
 • Lockbox service – (oldest corporate
cash management service)
Example
• All essential but non core areas of
business are candidates for
Who?
outsourcing.
• Subcontracting a certain business
operation to an outside firm, whether Outsourcing
abroad or at home instead of doing it
“in-house.”
OUTSOURCING
 Improving
company
focus

Reduce and
Make the
control
business more
operating
flexible
costs

Free
Improve Why resources for
service quality other
outsource? purposes

Develop
Restructure
internal staff.
Cost

Continuity &
risk
management
 Other companies may
also be using the
service provider. The
best interests of the
service provider may
be diluted
Creates potential Loss in customer
redundancies focus.

Poor Quality control

over process
Disadvantages Employees reaction
 BUSINESS PROCESS OUTSOURCING(BPO)

• It is a subset or a specialized form of outsourcing in which an entire

business process is handed over to a third party service provider.

Back office Front office

outsourcing outsourcing
Includes internal Includes customer-
business functions related services
such as HR & such as contact
Finance center services.

BPO

• BPO companies are often located in India ,China , Mexico & Eastern
European nations.
• Leading BPO companies in India includes GENPACT, WNS SERVICES ,IBM
DAKSH ,WIPRO ,TCS.

Advantage- enhances flexibility of an organization in different ways.

CASH BALANCE TO
MAINTAIN

Dharmendra Choudhary
MBA-Tech IT(Shirpur)
• Firms establish a target level of cash balances to
maintain.

• Excess cash balances are avoided because interest

can be earned when these funds are invested in
marketable securities.

• Greater interest rate = Greater opportunity cost to

idle cash balances.
The optimal level of cash should be the larger of:

(1) The transaction balances required when cash

management is efficient.

(2) The compensating balance requirements of

commercial banks.
 COMPENSATING BALANCES AND FEES

• Establishing minimum level of cash balance depends on

the compensating balance requirements of banks.

• Compensating bank for services is based on profitability of

the account.

• Banks differ in determination of compensating balances ,

so firms chooses that bank which provides lowest
compensating balances for a given level of activity.
 RECENT TRENDS

• Paying cash for services rendered instead of maintaining

compensating balances.

• Earn more on funds used on compensating balances than

for the fee for the services.
MARKETABLE SECURITIES
MANAGEMENT

Shruti P Bihani
MBA-Tech Chemical (Mumbai)
 CASH
• Compensating
? MARKETABLE
SECURITIES
• Remaining Excess
Balance Cash
• Service Fee
 e s t ER M
Int e r
R T-T
SHO ETABLE
g h e r o u nt
H i c
E a rn n g s ac s h
1. n
i
Sav ets: Ca AR K I E S
th a
d A ss M U R I T
SEC
i
iqu lents
. L
2
q u i va a s h for s
E
er v ec e v ent
. P res cipated
3 ti
unan

AS H
C

• Maturity less than 3 months

• Insignificant Risk of change in value
 Criteria for selecting Marketable Securities
1. Safety of Principal
SAFETY 2. High degree of
safety required if to
be considered
1. Refers to Life of the 3. Treasury Bills
security
2. Time before which
principal amount
remains due

MATURITY YIELD
1. Interest of
appreciation
provided
1. Ability to convert to 2. BEY and EAY
cash at a short notice 3. Interest-Rate Risk
2. Sale without loss
before maturity
3. Large Second hand
market MARKETABILITY
 MARKETABLE SECURITIES PORTFOLIO

●
To take care of probable deficiencies
in the firm’s cash account
●
Requires instant liquidity
●
For unforeseen operating needs of
the firm

Free Cash Ready Cash Segment

Segment
Ready Cash
Segment
Controllable
Cash Segment
 MARKETABLE SECURITIES PORTFOLIO

●
For meeting controllable outflows
●
Taxes
●
Dividends
●
Loans coming due
●
Interest Payments
Controllable Cash
Free Cash Segment
Segment
Ready Cash
Segment
Controllable
Cash Segment
 MARKETABLE SECURITIES PORTFOLIO

●
Available for as yet
unassigned purposes
Free Cash
Free Cash Segment
Segment
Ready Cash
Segment
Controllable
Cash Segment
 COMMON MARKETABLE SECURITIES

Certificate Inter
Treasury Commercial
of Corporate
Bills Paper
Deposits Deposits

Ready
Forwards/ Bills of Bill
Repos/ Exchange Discounting
Buybacks
 READY CASH SEGMENT

 Auctioned by RBI
 14,91,182,364 days
TREASURY BILLS  Rs.25,000 and
• Safety multiples
• High  Procedure of
Marketability earning
 CONTROLLABLE CASH SEGMENT

CDs, BILLS  Issued By?

 Maturity Time
DISCOUNTING, REPOS  Denomination
• Meet time constraints  Procedure of Earning
• Marketability less
important
 FREE CASH SEGMENT

 Issued By?
ANY MARKETABLE  Maturity Time
 Denomination
SECURITIES  Procedure of Earning
THANK YOU