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CASH MANAGEMENT

Cash or money itself are in the form of currency and current

accounts. Current account is known more formally as a demand in the
bank. The bank pays money out of the current account to another
person when the owner of the account issues cheque.

Cash is considered the most liquid asset of a company, which is non-
earning asset. It means that by holding cash we cannot earn any
interest or return on it.

But the company still need cash to pay bills, purchase goods, make
payment on interest, pay salaries/wages and so on. Even though
cash it self does not earn any return, a firm must have cash in hand
to run the business efficiently.

Cash management is mainly concerned with maintaining liquidity of
a firm so as to minimize the risk of insolvency.

A company becomes insolvent when it is unable to meet its maturing
liabilities on time because it lacks the necessary liquidity to make

prompt payment on its current debt obligations.

Objectives of Cash Management

1. Carrying minimum amount of cash: a company attempts to carry
the minimum amount so that it does not have a lot of cash in hand
since it does not earn any return. So a firm must minimize idle cash
balances.

2. Have enough cash to make payment.: to make sure a company
can make the payment during the operation of the business without
running out of cash.