Presentation on theme: "Financial Analysis, Planning and Forecasting Theory and Application"— Presentation transcript:
1 Financial Analysis, Planning and Forecasting Theory and Application Chapter 20Cash, Marketable Securities, and Inventory ManagementByAlice C. LeeSan Francisco State UniversityJohn C. LeeJ.P. Morgan ChaseCheng F. LeeRutgers University
2 Outline 20.1 Introduction 20.2 The Baumol and Miller-Orr model 20.3 Cash management systemsCredit lines and bank relations20.5 Marketable securities management20.6 Inventory Management20.7 SummaryAppendix 20A. Derivation of equation 20-1
22 20.7 SummaryChapter 20 has examined various aspects of cash and marketable security management. Two techniques were discussed that can assist in the estimation of an optimal level or range for the cash balance; these were Baumol’s model and the Miller-Orr model.To make the cash collection system more efficient, the firm can choose from various methods for collecting or transferring cash and deciding when to transfer it. Such cost minimization is ideal for linear programming applications.
23 20.7 SummaryThe credit line offers the firm a means of handling cash variations caused by seasonal effects or unanticipated events. Establishing good bank relations is an important feature for any cash management system. However, bank services do take on a cost, typically in the form of compensating balances. While credit lines can be a good investment for a bank, they can have detrimental effects on the bank’s liquidity that could intensify any maturity gap problems.Efficient cash management ensures that surplus balances are invested in marketable securities that meet minimum standards for certainty of principal, maturity, liquidity, and yield. In Chapter 20, we considered the hedge decision from the cash manager’s perspective and gave various examples of hedging applications. Optimal inventory management was also briefly discussed.