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Cash Management Paper
MBA 503 – Introduction o Finance and Accounting
April 28, 2008















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Introduction

Today’s global financial market has progressively become more volatile, and driven by the demand for growth and bottom line profitability. Cash is a company’s livelihood. If managed properly a company remains healthy, strong and vibrant. However, if a company manages the cash flow poorly, then the company can suffer some form of a cardiac arrest. Companies that do not value cash management as an important issue are probably undermining the organization. Most companies do not want to keep any more cash on hand than what is absolutely necessary. Most companies must keep some cash for transactions, bank payments, and potential emergencies. The opportunity cost of holding an excess of cash rather than reinvesting it into current assets or growing the firm’s fixed assets is often significant. There are multiple of techniques that a firm can employ to manage its cash, some of these techniques include float, short-term investments, and international cash management.

Float
Due to the opportunity cost of holding excess cash, most companies try to leverage the minimal amount of cash that they carry to cover as many payables as possible. One way that firms achieve this goal is by employing the use of float. Float refers to the difference between the balance carried on the corporate books and the amount credited to the corporation by its bank (Block & Hirt, 2005). Otherwise, in simpler terms the differences between the cash balance shown on a firm’s checkbook and the bank account. Caused by delays in the transfer of funds between bank accounts. Payables and receivables are entered into corporate books as processed; however, the actual transactions...