Determining optimum cash balance, Managerial Accounting

One of the main deities of the financial manager is to keep a sound liquidity position for the firm hence the dues are settled as and while they mature. Separately from this the finance manager has to make sure that enough cash is obtainable for the smooth running of operating activities and also for paying of dividends, taxes and interest. Under a nut shell there must be availability of cash to convene the firm's obligation and while they turn into due. The real dilemma that the finance manager faces is to chose on the quantum of cash balance to be not kept in such a manner that at any specified point of time there is neither cash deficit nor cash surplus. Cash is a non-earning asset; thus, cash must be kept at the minimum level. The cost of holding cash is the loss of interest or return had which cash been invested beneficially. The surplus cash cost is the cost of interest or opportunities foregone. The cost of shortage or deficit of cash is measured through the cost of raising funds to meet the deficit or in extreme cases the cost of restructuring, bankruptcy and loss of goodwill.

Cash shortage can results in sub-optimal investment and sub-optimal financing decisions.

The firm must keep optimum just sufficient neither more nor too little cash balance. There are several models used to compute the optimum cash balance such a firm ought to keep. However the most broadly termed as model is Baumol's model. This is chiefly used while cash flows are predictable.

Posted Date: 4/9/2013 3:35:49 AM | Location : United States

Related Discussions:- Determining optimum cash balance, Assignment Help, Ask Question on Determining optimum cash balance, Get Answer, Expert's Help, Determining optimum cash balance Discussions

Write discussion on Determining optimum cash balance
Your posts are moderated
Related Questions
Difficulties in cost reduction 1) Resistance by employees to pressure to reduce cost usually because the nature and purpose of the campaign has not been properly explained to t

GRAPHICAL METHOD Graphical methods can be used in games with no saddle points and having pay off m X 2 or 2 X n matrix. The aim is to substitute a much simpler 2 X 2 matrix for

Application of zero base budgeting In the following areas ZBB may be applied: 1) redundant schemes may be discontinued 2) identify the duplicate schemes and merge them in

Q.Process of Pricing in maturity period? Maturing periods is the third stage in the life cycle of a product. If is a stage between growth period and decline period of sales. So

find full-cost& variable cost using transfer pricing method

Prepare Summary Journal Entries to record the( 1) requistion slips

Characteristics of product life cycle The major characteristics of life-cycle concept are as follows: 1) The products have finite live and pass by the cycle of development i

advantage and disadvantage of incremental budget

Application of Transportation Model In the direct logic, the transportation model looks for the determination of a transportation plan of a particular commodity from a number o

What is period cost Period costs are those costs which are reported as expanses of the period in question. These are cost which are not assigned to the product but are charged