Page 289 - DMGT405_FINANCIAL%20MANAGEMENT

Unit 13: Management of Cash

Self Assessment Notes

Fill in the blanks:
15. The selection of securities should be guided by three principles which are………., Maturity
and Marketability.

16. ………………refers to the convenience, speed and cost at which a security can be converted
into cash.



Case Study Case: Bajaj Electronics – Cash Forecasting

This case tests the reader’s ability to develop a basic cash forecast for a firm and prepare a
recommendation for backup financing over a period of 12 months.
A leading producer of telecommunications components and a major contender in shorter
antennas is Bajaj Electronics Company. Bajaj’s business has grown tremendously in recent
years despite increased competition. The primary reasons for increased growth are
technological advancement that have expanded production capacity, an aggressive
marketing effort, and a reputation for quality products and excellent service.
Loofer the financial analyst for the company, has been assigned the task of preparing a
quarterly cash forecast for the next fiscal year. After checking with marketing, he was
given a monthly breakdown of actual sales for last month and the current month and the
current month and a forecast for the next 12 months. These are given in Table 1 and reflect
the somewhat seasonal nature of the firm’s marketing activities.

Table 1: Actual and Forecast Sales from Marketing

Month Actual Credit Sales Forecast Sales
November $ 4,338,000
December 5,204,000
January $ 4,600,000
February 4,500,000
March 4,500,000
April 52,00, 000
May 5, 000, 000
June 4,700, 000
July 6, 000, 000
August 6,000,000
September 5,800,000
October 4,500,000
November 4,600,000
December 4,600,000

From the accounting department, Loofer obtained information on the historical mix of
sales and collection information. During the first half of the year, credit sales generally
made up about 80 per cent of all sales. In the second half, this dropped to 75 per cent. With
Contd...

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