cash & marketable securities mgmt (2)
TRANSCRIPT
CASH &
MARKETABLE SECURITIES MANAGEMENT
MOTIVES FOR HOLDING CASHJohn Maynard Keynes suggested 3 reasons:
Transactions motive
Speculative motive
Precautionary motive
METHODS TO IMPROVE
CASH MANAGEMENT
EFFICIENCY
Speeding up cash receipts
Slowing down cash
payouts
SPEEDING UP CASH RECEIPTS
Vaibhav ChaudharyMBA-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 float
Earlier Billing
Customer mails cheque
Firm receives cheque
Firm deposits cheque
Firm’s bank Account credited
Mail float:Time the cheque is in the mail.
Processing float:Time it takes aCompany to process the cheque internally.
Availability float:Time consumed in clearing the cheque Through the bankingSystem.
Deposit float: Time during which the cheque received by the firm remains uncollected funds
Collection float: Total time between the mailing of the cheque byThe customer and the availability of cash to the receiving firm.
A time-line explanation of the collection float and its components
CONCENTRATION BANKING
3 principle methods to move funds between banks:
• Depository transfer checks(DTC)
• Automated clearinghouse(ACH) electronic transfer
• Wire transfer
It improves control over inflows and outflows of corporate
cash
It reduces idle balances
It allows for more
effective investments
EFFECTS OF CASH CONCENTRATION
SLOWING DOWN CASH PAYOUTS
Siddharth DevnaniMBA-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 DawoodMBA-Tech IT(Shirpur)
ELECTRONIC COMMERCE
Business information in electronic format
Computer networks emphasis
Paper system Alternative
E- COMMERCE..
Electronic Data Interchange
(EDI)
Transfer of biz info in
computer readable format
Computer transfer + Physical
Transfers
COST & BENEFITS
Benefits Cost
Float Elimination!!
Convince Supplier & Client network for
changing
Train Personnel
Hardware + Software
Eliminates float
Better cash forecasting & mgmt
Reduces mail, doc & storage
Faster Cash & info movement; reliable
INDIAN SYSTEMS FOR E-COMMERCE
NEFT RTGS
ECS
CTS (only in Delhi as of now)
OUTSOURCING
Bhavuk ChandakMBA-Tech IT(Shirpur)
•Subcontracting a certain business operation to an outside firm, whether abroad or at home instead of doing it “in-house.”
Outsourcing
•All essential but non core areas of business are candidates for outsourcing.
Who?
•Lockbox service – (oldest corporate cash management service)Example
OUTSOURCING
Why outsource?
Improving company
focus
Reduce and control
operating costs
Free resources for
other purposes
Restructure Cost
Continuity & risk
management
Develop internal staff.
Improve service quality
Make the business more
flexible
DisadvantagesPoor Quality control over process
Creates potential redundancies
Other companies may also be using the
service provider. The best interests of the
service provider may be diluted
Loss in customer focus.
Employees reaction
• 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.
• 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.
BUSINESS PROCESS OUTSOURCING(BPO)
Advantage- enhances flexibility of an organization in different ways.
BPO
Back office outsourcing
Includes internal business functions
such as HR & Finance
Front office outsourcing
Includes customer-related services such as contact center services.
CASH BALANCE TO MAINTAIN
Dharmendra ChoudharyMBA-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.
• 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.
COMPENSATING BALANCES AND FEES
• 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.
RECENT TRENDS
MARKETABLE SECURITIES MANAGEMENT
Shruti P BihaniMBA-Tech Chemical (Mumbai)
CASHMARKETABLE
SECURITIES?• Compensating
Balance• Service Fee
• Remaining Excess Cash
CASH
SHORT-TERM
MARKETABLE
SECURITIES1. Earn Higher Interest
than Savings account
2. Liquid Assets: Cash
Equivalents
3. Preserve cash for
unanticipated events
• Maturity less than 3 months• Insignificant Risk of change in value
SAFETY
YIELD
MARKETABILITY
MATURITY
Criteria for selecting Marketable Securities1. Safety of Principal2. High degree of
safety required if to be considered
3. Treasury Bills
1. Interest of appreciation provided
2. BEY and EAY3. Interest-Rate Risk
1. Ability to convert to cash at a short notice
2. Sale without loss before maturity
3. Large Second hand market
1. Refers to Life of the security
2. Time before which principal amount remains due
MARKETABLE SECURITIES PORTFOLIO
Ready Cash Seg-ment
Con-trol-lable Cash Seg
ment
Free Cash Seg
ment
• To take care of probable deficiencies in the firm’s cash account
• Requires instant liquidity
• For unforeseen operating needs of the firm
Ready Cash Segment
MARKETABLE SECURITIES PORTFOLIO
Ready Cash Seg-ment
Con-trol-lable Cash Seg
ment
Free Cash Seg
ment
• For meeting controllable outflows
• Taxes• Dividends• Loans coming due• Interest Payments
Controllable Cash Segment
MARKETABLE SECURITIES PORTFOLIO
Ready Cash Seg-ment
Con-trol-lable Cash Seg
ment
Free Cash Seg
ment
• Available for as yet unassigned purposes
Free Cash Segment
COMMON MARKETABLE SECURITIES
Inter Corporate Deposits
Ready Forwards/
Repos/ Buybacks
Bills of Exchange
Treasury Bills
Certificate of
Deposits
Commercial Paper
Bill Discounting
READY CASH SEGMENT
TREASURY BILLS• Safety• High
Marketability
Auctioned by RBI 14,91,182,364 days Rs.25,000 and
multiples Procedure of
earning
CONTROLLABLE CASH SEGMENT
CDs, BILLS DISCOUNTING, REPOS
• Meet time constraints• Marketability less
important
Issued By? Maturity Time Denomination Procedure of Earning
FREE CASH SEGMENT
ANY MARKETABLE SECURITIES
Issued By? Maturity Time Denomination Procedure of Earning
THANK YOU