Liquidity mix, Financial Management

Assignment Help:

I am facing some problems in my assignment of Liquidity Mix. Can anybody suggest me the proper explanation for it?


Related Discussions:- Liquidity mix

Calculate the net investment of the firm, Problem: i) Assume a firm bu...

Problem: i) Assume a firm buys a new tooling machine for Rs 2000,000, installation costs net of taxes are Rs 300,000. An existing asset has a book value of Rs 400,000 and the

Cost-volume-profit models, Bennis Shafts produces three types of golf club ...

Bennis Shafts produces three types of golf club shafts which it sells to golf club manufacturers.  Prepare ONE worksheet to answer the following questions and to determine the outc

Social responsibility-business ethics-business entity, Social responsibilit...

Social responsibility The firm must decide whether to operate strictly in their shareholders' best interests or be responsible to their employers, their customers, and the soc

Credit markets, Credit Markets: The financial system enables supply of ...

Credit Markets: The financial system enables supply of funds to support purchase of goods and services and to finance capital investments. In this way, it provides funds both t

Agency relationship, what are the ten agency problems between shareholders ...

what are the ten agency problems between shareholders and auditors and their solutions

Sollution the problem, VK Ltd a multi-product Company, furnishes you the fo...

VK Ltd a multi-product Company, furnishes you the following data relating to theyear 2000.First Half of the year Second Half of the yearSales Rs. 45,000 Rs. 50,000 Total Cost Rs. 4

Add or Drop Analysis, Lakespring Retirement Village is home to senior citiz...

Lakespring Retirement Village is home to senior citizens who are fairly independent but need assistance with basic health care and occasional meals. Jill Thompson, a licensed beaut

Major proportion of the maximum financing requirement, Q. Major proportion ...

Q. Major proportion of the maximum financing requirement? Whether the credit terms themselves is able to be changed may depend upon the credit terms of competitors when set alo

What is sustainable growth, Does the expected value of the sales and of the...

Does the expected value of the sales and of the net income of Spanish companies have anything to do with sustainable growth? No. Sustainable growth it is just a number that sho

Observation of capital structure, Q. Observation of capital structure? ...

Q. Observation of capital structure? Droxfol Co has long-term funding provided by ordinary shares preference shares and loan notes. The rate of return necessary by each source

Aliena

2/14/2013 2:21:46 AM

 

Liquidity Mix

Liquidity mix consider to the combination of several liquid investments in a company''s portfolio. There are several factors that affect the mix of liquidity. They are:

Uncertainty of Cash Flow Projections

The basic factor affecting liquidity mix is the uncertainty regarding the cash inflow and outflow estimates. Cash flows cannot be predicted along with utmost accuracy. Cash inflows involve receipts from collections, cash sales, from credit customers, disposal of old assets, proceeds from sale of investments, procurement of loans, issuance of stock, etc. All these types of inflows cannot be predicted with 100% certainty. For example, the past records of accounts receivables may reveal an average collection period of 30-45 days. Based upon the past data, one cannot really predict that all the accounts receivables would be collected by 45 days. If you approximate so and prepare the cash budget consequently, you may at times find surplus availability of cash throughout some period for investment. It may so happen that one or two customers become bankrupt and their balances to be written off. So uncertainty prevails. Cash outflows involve payment to creditors, payments to meet all the planned retirement, operating expenses, of bonds or loans etc. There is as well some amount of uncertainty regarding the period and magnitude of outflows. So, cash budget though serves as an important tool for estimating the surplus of cash, cannot be relied upon with 100% certainty for timing and magnitude of cash inflows and outflows, finally affecting liquidity mix.

Management Policies

The liquidity mix is as well as determined by the policies and decisions of the management. It depends on the risk-return perceptions and attitude of the management. If the management is risk-averse, will choose to maintain liquid cash balance lying idle without return than to invest in risky short-term securities. It may as well invest some money in Treasury bill types of securities that are risk-free. However if the management prefers a higher return over liquidity it may opt for high-risk high-return securities.

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