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Cash Management and The Importance of Cash management

This process also known as Treasury management. Cash management involves the management of cash flows from investing, operating, marketing budget, employeeu2019s salaries and all financial activities of the organization. Financial stability is the key aspect of the organization. If an organization is financially stable then it can compete the competitors in the market.

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Cash Management and The Importance of Cash management

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  1. What is Cash Management? • This process also known as Treasury management. Cash management involves the management of cash flows from investing, operating, marketing budget, employee’s salaries and all financial activities of the organization. Financial stability is the key aspect of the organization. If an organization is financially stable then it can compete the competitors in the market.

  2. The Importance of Cash Management • The cash is the most important asset of an organization that the organization use regularly to settle their operating expenses and obligations. This cash includes taxes, employee’s salaries, advertising costs, and rents etc.

  3. Cash is also used for the investment purposes like, buying property, plant and the equipment’s (PP&E) and other non-current assets. Every company can go throw inflows and outflows, so for their stability in market they must do cash management. If they have good management of cash than they can fight against the conflicts arise in the market.

  4. Causes of Problems with Cash Management

  5. Poor understanding of the cash flow cycle • The time of cash inflows and outflows must be understood by the management especially when they are going to pay the accounts payable of when they are going to purchase inventory. A company can get out of money in their rapid growth if they buy over inventory as they will not be getting paid already.

  6. Lack of understanding of profit versus cash • When a company generates profit, it does not necessarily mean they have already received cash payment for that revenue. So, a very fast-growing business that requires a lot of inventory may be generating lots of revenue but not receiving positive cash flows on it.

  7. Lack of Cash Management Skills • It is very important for the managers to attain and use different skills despite of understanding other issues. These skills involve the ability to manage and optimize the working capital. It includes the disciplines and suitable framework to ensure that the receivables must be collected on time and the payables must not be paid quickly then needed.

  8. Bad Capital Investments • A company can allocate capital for the projects that do not generate sufficient profits as required to justify the investment. If this continuous happening then the cash statements and profit will not be able to balance the organizations cash balance.

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