Answer to Question #50097 in Finance for abdulla sabit

Question

Why is cash management important? What are the two primary motives for holiday cash?

Answer 1

Cash management is concerned with management of cash in such a way as to achieve the generally accepted objectives of the firm- maximum profitability with maximum liquidity of the firm. It is the management's ability to recognize cash problems before they arise, to solve them when they arise and having made solution available to delegate someone carry them out.
An effective and efficient cash management is considered to be important for the following reasons:
1. Cash management ensures that the firm has sufficient cash during peak times for purchase and for other purposes.
2. Cash management helps to meet obligatory cash out flows when they fall due.
3. Cash management assists in planning capital expenditure projects.
4. Cash management helps to arrange for outside financing at favorable terms and conditions, if necessary.
5. Cash management helps to allow the firm to take advantage of discount, special purchases and business opportunities.
6. Cash management helps to invest surplus cash for short or long-term periods to keep the idle funds fully employed.