Determining optimum cash balance, Managerial Accounting

Assignment Help:

One of the main deities of the financial manager is to keep a sound liquidity position for the firm hence the dues are settled as and while they mature. Separately from this the finance manager has to make sure that enough cash is obtainable for the smooth running of operating activities and also for paying of dividends, taxes and interest. Under a nut shell there must be availability of cash to convene the firm's obligation and while they turn into due. The real dilemma that the finance manager faces is to chose on the quantum of cash balance to be not kept in such a manner that at any specified point of time there is neither cash deficit nor cash surplus. Cash is a non-earning asset; thus, cash must be kept at the minimum level. The cost of holding cash is the loss of interest or return had which cash been invested beneficially. The surplus cash cost is the cost of interest or opportunities foregone. The cost of shortage or deficit of cash is measured through the cost of raising funds to meet the deficit or in extreme cases the cost of restructuring, bankruptcy and loss of goodwill.

Cash shortage can results in sub-optimal investment and sub-optimal financing decisions.

The firm must keep optimum just sufficient neither more nor too little cash balance. There are several models used to compute the optimum cash balance such a firm ought to keep. However the most broadly termed as model is Baumol's model. This is chiefly used while cash flows are predictable.


Related Discussions:- Determining optimum cash balance

Two jobs during the period, The Work in Process account for Monty's Company...

The Work in Process account for Monty's Company contained the following entries: Work in Process Account Debit of $40,000 for direct raw materials Debit of $60,000 for direct labor

What is programmer budgeting, What is Programmer budgeting It is a comb...

What is Programmer budgeting It is a combination of programming and systems refers to the activity and system analysis refers to cost benefit analysis or operations research. I

Help, Jackson County Senior Services is a nonprofit organization devoted to...

Jackson County Senior Services is a nonprofit organization devoted to providing essential services to seniors who live in their own homes within the Jackson County area. Three serv

Alternative performance measures, Alternative performance measures Ther...

Alternative performance measures There are various measures that can be used to measure performance of a decentralized company. The major ones are: •    Return on Investmen

Break even analysis, Break even analysis and target profit, taxes - Patters...

Break even analysis and target profit, taxes - Patterson Parkas Company's sales revenue is $30 per unit, variable costs are $19.50 per unit, and fixed costs are $147,000. a)Compute

Marginal costing, marginal costing decision making assignment questions

marginal costing decision making assignment questions

Breakeven point, A company manufactures a one product. Estimated cost data ...

A company manufactures a one product. Estimated cost data regarding this product and other information for the product and the company are as follows: Sales price per unit Rs.2000

Describe the nature of standard costing, Describe the Nature of standard co...

Describe the Nature of standard costing The system of standard costs (standard costing) is a management technique of using predetermined costs (standard costs) for evaluating p

Collection policy, Exact management of receivables acquires a suitable coll...

Exact management of receivables acquires a suitable collection policy that outlines the collection procedures. Collection policy consider as the procedure adopted through a firm to

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd