Lorenzo A. Preve and Virginia Sarria-Allende
- Published in print:
- 2010
- Published Online:
- May 2010
- ISBN:
- 9780199737413
- eISBN:
- 9780199775637
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199737413.003.0005
- Subject:
- Economics and Finance, Financial Economics
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 ...
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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.Less
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.
