Chapter

Cash Management

Lorenzo A. Preve and Virginia Sarria-Allende

in Working Capital Management

Published in print March 2010 | ISBN: 9780199737413
Published online May 2010 | e-ISBN: 9780199775637 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780199737413.003.0005

Series: FMA SURVEY

Cash Management

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This chapter summarizes the factors a financial manager needs to take into account with respect to a firm's cash management policy. We begin with a brief discussion of the various motives for holding cash. We introduce the transaction motive, the precautionary motive, the speculative motive, and the use of cash as a hedging tool. We then summarize the key variables that determine a firm's optimal cash balance. Next, we explain why a firm's cash collection policy and its cash conversion cycle matter for good cash management. Finally, we discuss how a firm can optimally invest its idle cash.

Keywords: corporate finance; working capital management; cash management; transaction motive; precautionary motive; speculative motive; cash conversion cycle

Chapter.  3799 words.  Illustrated.

Subjects: Financial Markets

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