Cash Management

1 . Introduction - Areas funds management techniquesIn accounting basis operative capital is basically the difference between ongoing assets and current liabilities . Thus in to adopt a squ be-toed working capital policy and avoid the financial problems hard immediate payment management techniques be adopted on keeping an best inventory and currency balance A number of systems are used both for inventory and exchange control , which lead be compared and distinguished in the next sectionsEconomic Quantity mold and Just in Time SystemThese two techniques pursue the equivalent objective , of controlling inventory keeping costs and change magnitude the risk of running out of stock However , the economic quantity sit around achieves this by keeping an appropriate level of stock , while the just in clock time outline adopts a system of stockless production . Just in time is found on the premise that stocks are delivered from suppliers just forwards they are needed in the production plant . The simplification in inventory and the cash operating cycle achieved by such system can significantly help the working capital of the organizationThe economic quantity method is based on the principle that an optimal level of inventory is set by a tabulation method or graphical method . An equation utilized to calculate the economic quantity is the following This model of holding stock is based on assumptions , which are not practical . For instance , one assumption holds that holding costs per unit will be constant . In reality holding costs may change as activity increases because some costs behave on an additive basis . For example , if stocks increase at a straight rate an additional store man will be employed to help the present storekeeperThe economic quantity method basically involves the Stores and Accountancy Departments in its preparation , whilst the just in time system is not considered in isolation that should be regarded as part of the corporate culture .

In to operate successfully it is imperative that a strong bind exists between the suppliers and the customers , and that a corporate culture of right-first-time is adopted to a fault it is important that a smooth movement of materials exists from process to process . Indeed a usually adopted with the introduction of a just in time systemBaumol Model and the Miller-Orr ModelThese two techniques effort to control another trade-off that exists between keeping cash and costs of holding cash . By holding cash one can keep a financial fill-in in case of unexpected events . However , idle cash resources will lead to foregone business opportunitiesThe Baumol Model is based on the presumptions utilized in the economic quantity model . Indeed its principle states that a balance is kept to give for expenses , which is replenished once it reaches a low amount . This method is perfection when the bank balance is a drawdown account . On the unregenerate , the Miller-Orr Method is further advanced by considering that variations in cash flows arise and does not hold the assumption of the Baumol modelThe Miller-Orr Model is similarly based on assumptions different from...If you want to get a full essay, order it on our website: Ordercustompaper.com

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