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Unit 11: Cash Management
A projected cash flow statement prepared based on expected cash receipts and payments, Notes
anticipation the financial condition of the fi rm.
Cash budget is a statement showing the estimated cash inflows and cash outflows over a
planning period.
11.8 Keywords
Cash Budget: It is a statement showing the estimated cash inflows and cash outflows over a
planning period.
Cash Planning: It is a technique to plan and control the use of cash.
Cash: It is one of the components of current assets and a medium of exchange for the purpose of
transactions.
Money Market: It refers to the market for short-term securities.
11.9 Self Assessment
Fill in the blanks:
1. Cash is one of the components of ..................... .
2. Cash is the most ..................... asset.
3. The two types of cash forecasting are ..................... and ..................... .
4. Surplus cash is ..................... .
5. ................................... is required to estimate the cash surplus or deficit for each planning
period.
6. ............................is that balance at which the cost of excess cash and danger of cash defi ciency
will match.
State whether the following statements are true or false:
7. There is no time gap between cash inflows and outfl ows.
8. The time taken by post offices in transferring the cheques from the customer to the fi rm is
referred to as postal fl oat.
9. There are four motives for holding cash.
10. Conversion cost is the cost of converting securities into cash.
11.10 Review Questions
1. ABC Ltd., estimates its total cash requirement as ` 5 crore in the next year. ` 300 is the
conversion cost of securities in cash on which the firm was earning 15 per cent interest per
annum. Determining the optimum cash balance.
2. Best of Luck Co. Ltd., fi rm estimated its total cash requirements of ` 2,00,000 for next six
months. The firm has to spend ` 200 as conversion cost, if it wants to convert its securities
into cash. The firm has 10 per cent securities. What is the economic conversion size of cash.
Assume the firm has securities in the lot sizes of ` 20,000, ` 40,000, ` 60,000, ` 80,000 and
` 1,00,000.
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