Cash Management Research Paper

CHAPTER 3: Theoretical Background

MEANING AND DEFINITION: The term cash management refers to the management of cash resource in such a way that generally accepted business objectives could be achieved. In this context, the objectives of a firm can be unified as bringing about consistency between maximum possible profitability and liquidity of a firm. Cash management may be defined as the ability of a management in recognizing the problems related with cash which may come across in future course of action, finding appropriate solution to curb such problems if they arise, and finally delegating these solutions to the competent authority for carrying them out The choice between liquidity and profitability creates a state of confusion. It

These principles reflecting cause and effect relationship having universal applications give a scientific outlook to the subject of cash management. While, the application of these principles in accordance with the changing conditions and business environment requiring high degree of skill and tact which places cash management in the category of art. Thus, we can say that cash management like any other subject of management is both science and art for it has well-established principles capable of being skilfully modified as per the requirements. The principles of management are follows

All these aims and motives of cash management largely depend upon the efficient and effective functioning of cash management. Cash management functions can be studied under five heads, namely, cash planning, managing cash flow, controlling cash flow, optimizing the cash level and investing idle cash. All these functions are discussed below in