23-09-2014, 12:06 PM
A STUDY ON CASH MANAGEMENT
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INTRODUCTION TO FINANCE
The finance can be defined as the art and science of managing money. Finance is the primary essence for the proper functioning of an industrial organization. Without adequate finance neither a business can be established nor successfully operated. Provision of adequate finance at the required time is the key towards success of a business.
Financial management is that managerial activity which is concerned with planning and controlling of the firm’s financial resources. Finance requirements may be short term or it may be long-term. Short-term requirements are related to working capital management of an organization and long-term requirement are planned through capital budgeting.
DEFINITION
According to Phillipatus, “Financial Management is concerned with managerial decisions that results in the acquisition and financing of long term and short term credit for the firm. As such, it deals with the situations that require selection of specific assets, selection of specific liabilities as well as problems of size and growth of an enterprise. The analysis of this decision is based on the expected inflow and outflow of funds and their effect upon managerial objective.”
IMPORTANCE OF FINANCIAL MANAGEMENT
The importance of financial management can be expressed as follows:
1. Finance is the lifeblood of business and every business unit needs money to make more money, but money will get more money only when it is managed properly.
2. Financial management is absolutely necessary for every business unit, which is required to make more money.
3. In the words of Collins Brooks “Bad production and sales management slain hundreds but faulty finance slain thousands”.
4. Financial management helps a firm in optimizing the output from given input of funds.
5. Financial management helps a firm in monitoring the effective employment of funds in fixed assets as well as in current assets.
Financial Management helps in profit planning, capital budgeting,
Controlling inventories and accounting principles.
2) Profit Maximization:
A business firm is a profit seeking organization. Naturally the profit maximization will be one of the most important objectives of financial management. The earnings or the profits of a firm can increase either by increasing the output or by minimizing the cost of the production for a given output.
The objective of profit maximization implies that any financial decisions would be evaluated on the basis of its overall contribution to the profits or earnings of the enterprise.
3) Wealth Maximization:
Wealth maximization is an appropriate objective of an enterprise. Financial theory asserts that wealth maximization is the single substitute for a stock holder’s wealth, the individual stock holders can use this wealth to maximizing the stock holder’s wealth, and the firm is operating consistently towards maximizing stock holders utility.
II OTHER OBJECTIVES:
a) Ensuring maximum operational efficiency through planning, directing and controlling of the utilization of the funds i.e., through effective employment of funds.
b) Enforcing financial decision in the organization while using financial resources through co-ordination of the operations of the various decisions of the organizations.
c) Building up of adequate resources for financing growth and expansion and ensuring fair returns to share holders.
CASH MANAGEMENT
Cash is the most important current assets for the operations of the business. Cash is the basic input needed to keep the business running on a continuous basis it is also the ultimate output expected to be realized by selling the service or product manufactured by the firm. The firm should keep sufficient cash neither more or less.
Cash shortage will disrupt the firm manufacturing operation while excessive cash will remain idle without contributing anything towards the firms’ profitability this is major function of the financial manager is to maintain a sound cash position.
Nature of cash
For some persons, cash means only money in the form of currency (cash in hand). For other persons, cash means both cash in hand and cash in bank. Some even include near cash assets in it. They take marketable securities too as part of cash. There are the securities that can be easily being converted into cash. These viewpoints reflect the degree of freedom of the persons using the cash. Whether a person’s wants to use it immediately or can wait for a time to use it depends upon the needs of concerned persons.
Cash itself does not produce goods or services. It is used as a medium to acquire other assets. The idle cash can be deposited in bank to earn interest. A business has to keep required cash for meeting various needs.
The assets acquired by cash again help the business in producing cash. The goods manufactured or services produced are sold to acquire cash. A firm will have to maintain a critical level of cash. If at a time it does not have sufficient cash with it, it will have to borrow from the market for reaching the required level.
There remains a gap between cash inflows and cash outflows. Sometimes cash receipts are more than the payments or it may be vice versa at another time. A financial manager tries to synchronize the cash inflows and outflows. But this situation is seldom found in the real world. Perfect synchronization of receipts and payments of cash is only an ideal situation.
CONCLUSIONS
Cash flow management is a tool for rigorous evaluation of cash management. The cash flow statement for the year ended 31st March 2009 indicated the following:
Net cash flow from operating activities is satisfactory.
Cash flow from investment activities showed a negative balance but the benefits of it can be enjoyed over years as it represented purchase of investments.
The net change in cash and cash equivalents and the closing cash and cash equivalents were found satisfactory.
After analyzing each and every head we are required mainly to concentrate on Debtors. Debtors is forming major portion in total current assets, as the debtors collection period is decreasing slowly, it shows the sign of recovery of debtors at the faster rate., HARITHA which is the only customer to JGAI, is now privatized which was earlier run, this may help in faster repayment of dues from HARITHA to JGAI, if this becomes true then the collection period will substantially come down, in this way both of them work together to achieve optimization in their respective fields.
JGAI is entirely dependent on for their sales the track record of collection from JGAI are not very good.