Question

Discuss the basic principles of cash management.

Answer 1

the basic principles of cash management are as follows-

1) first to see at the opportunity cost of holding cash, that means which project gives best returns to cash is important to look at while we are talking about cash management.

2) another important thing to do is to maintain a balance between the cash holding and investment in different projects because both liquidity and investment are important parts of cash management.

3) the receivables that are going to come should come first or we can say speeding up of the collection of receivables is another important principle of cash management. the faster it will come the better it will be reinvested and better it will be fruitful.

4) as we know the inventory levels are the closing stock minus the opening stock which remains is our inventory. as less inventory it is the better it is so try to maintain the inventory level low to manage better cash.

5)expenditure is one of the best way to manage cash and the right time and right place to invest is even more importanat to get back your cash. so the bigger and better investent are the key.

6) investing and reinvesting is the spell to get good result. one should not hold more idle cash in hand so there should be a balance between required cash in hand and investment of it.