Why should I choose AnalystNotes?

AnalystNotes specializes in helping candidates pass. Period.

Find out more
Subject 2. Managing the Cash Position PDF Download
Managing short-term cash flows involves minimizing costs. The two major costs are carrying costs, the return forgone by keeping too much invested in short-term assets such as cash, and shortage costs, the cost of running out of short-term assets. The objective of managing short-term finances and doing short-term financial planning is to find the optimal trade-off between these two costs.

The starting point for good cash flow management is developing a cash flow projection. To forecast short-term cash flows, a financial manager needs to:

  • Determine minimum cash balances.
  • Identify the typical cash inflows and outflows of the company.
  • Develop a cash forecasting system.

Monitoring cash uses and levels means keeping a running score on daily cash flows.

  • The most important task is to collect cash flow information on a timely basis.
  • Establish a target cash balance for each bank.
  • Use short-term investments and borrowing to help with cash position management.
  • Consider other factors, such as seasonal factors, upcoming mergers and acquisition, etc.

Learning Outcome Statements

d. describe how different types of cash flows affect a company's net daily cash position;

CFA® 2022 Level II Curriculum, , Volume 4, Reading 35

User Contributed Comments 1

User Comment
Cesarnew carrying vs shortage
You need to log in first to add your comment.
Your review questions and global ranking system were so helpful.
Lina

Lina

My Own Flashcard

No flashcard found. Add a private flashcard for the subject.

Add

Actions