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Working Capital Management$
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Lorenzo Preve and Virginia Sarria-Allende

Print publication date: 2010

Print ISBN-13: 9780199737413

Published to Oxford Scholarship Online: May 2010

DOI: 10.1093/acprof:oso/9780199737413.001.0001

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Cash Management

Cash Management

Chapter:
(p.60) 5 Cash Management
Source:
Working Capital Management
Author(s):

Lorenzo A. Preve (Contributor Webpage)

Virginia Sarria-Allende (Contributor Webpage)

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199737413.003.0005

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.

Keywords:   corporate finance, working capital management, cash management, transaction motive, precautionary motive, speculative motive, cash conversion cycle

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