FINANCIAL MGMT. & MGMT. ACCOUNTING
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4. The first priority of any business is survival and this cannot be assured, even in the short run, unless a company remains both liquid and solvent, that is, unless it is able to pay its debts as and when they fall due, both immediately and in the foreseeable future. 5. Cash management involves balance sheet changes and other cash flows that do not appear in the profit and loss account such as capital expenses. 6. It gives an inventory of the financial reserves which are available in the event of a recession. 7. It yields a plan as an integral part of the procedure. 8. It views problems in a dynamic context over a period of time. 9. It yields a number of additional insights into the crucial task of framing a sound debt policy. The focus is on the solvency of the firm in adverse circumstances rather than on the effects of leverage in normal circumstances. 10. While a regularization of cash flows enables a management to achieve a more effective planning, sophistication in handling cash enables a firm to cut down on the amount that it must keep in order to sustain any given level of operations.
Q.EXPLAIN THE DISADVANTAGES OF CASH MANAGEMENT 1. It may offer a solution of compensation which is not justified on the basis of a concrete notion, particularly when the business economy operates in an uncertain world. 2. It considers economic recession as the main source of uncertainty but ignores technological developments, shifts in consumer preferences, political changes etc. Moreover, recessions are not the only source of economic unhappiness. 3. The cost of holding cash is the profit that could have been earned had the funds been put to another use. 4. Financial distress usually is a matter of degree, while the declaration of the bankruptcy is an indication of this distress in an extreme form.
Middle firms of
financial distress occur when a firm’s cash flows falls below expectations. Costs of financial distress are thus related to modifications in investment and financial strategic made necessary by the conditions of distress.
Firms often encounter
conditions of financial distress which are sometimes mild and sometimes rather severe.
Q. EXPLAIN THE VARIOUS METHODS OF INVESTING SURPLUS FUNDS. WHAT CRITERIA SHOULD A FIRM USE IN INVESTING IN MARKETABLE SECURITIES? There are, sometimes surplus funds with the companies which are required after sometime. These funds can be employed in liquid and risk free securities to earn some income. There are a number of avenues where these funds can be invested. The selection
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