What Is Cash Management?

Cash management is the collecting and managing of 澳洲幸运5官方开奖结果体彩网:cash flows, which is important for individuals and companies. Cash is a key component of a company's financial stability and a part of an individual's wealth 澳洲幸运5官方开奖结果体彩网:portfolio. Many cash management solutions from banks and financial institutions are available for individuals 𒁃and businesses.

Cash Management Solutions

Cash is a primary asset that individuals and companies use to pay their obligations and invest. Managing cash is a daily task maintaining inflows and outflows. Proper cas🔥h management can improve a company's or individual's financial situation and liquidity problems.

Corporate cash management involves business managers, treasurers, and 澳洲幸运5官方开奖结果体彩网:chief financial officers (CFOs). These professionals implement and oversee cash management strategies. Many companies may 澳洲幸运5官方开奖结果体彩网:outsource their cash management responsibilities to service providers to meet payment 澳洲幸运5官方开奖结果体彩网:obligations, plan future payments, and maintain stability.

Individuals can maintain cash balances for expenses while earning a return. 澳洲幸运5官方开奖结果体彩网:Cash management accounts consolidate personal financial accounts, including investing, savi💞ng, and checking in one financial institution.

Corporate Reporting

Several key metrics are monitored and analyzed daily, monthly, quarterly, and annually. The cash flow statement is a central component of corporate cash flow management. While it is often transparently reported to stakeholders quarterly, parts of it are usually maintained and tracked internally daily. The cash flow statement includes:

• Cash received from accounts receivable (AR)
• Cash paid for 澳洲幸运5官方开奖结果体彩网:accounts payable (AP)
• Cash paid for investing
• Cash paid for financing

The cash flow statement is divided into operating, investing, and financing. The operating portion of cash activities tends to vary based heavily on the net 澳洲幸运5官方开奖结果体彩网:working capital reported on the cash flow statement as a company’s current assets minus 澳洲幸运5官方开奖结果体彩网:current liabilities. The other two sections of the cash flow statement report cash inflows and outflows for investing and financing. The 澳洲幸运5官方开奖结果体彩网:bottom line of the cash flow statement reports how mu🍷ch cash a co🤡mpany has readily available.

Internal Controls

Many 澳洲幸运5官方开奖结果体彩网:internal controls are used to manage and ensure efficient business cash flows. Internal controls are various accounting and auditing mechanisms that companies use to ensure that their financial reporting is compliant with regulations. The Sarbanes-Oxley Act of 2002 holds managers legally responsible for the accuracy of their companies' financial statements. A company’s cash flow considerations include:

• The average length of accounts receivables
• Collection processes
• 澳洲幸运5官方开奖结果体彩网:Write-offs for uncollected receivables
• Liquidity and 澳洲幸运5官方开奖结果体彩网:rates of return (RoR) on cash equivalent investments
• 澳洲幸运5官方开奖结果体彩网:Credit line management
• Available operating cash levels
  

Working Capital

Cash flows of operating activities depend on working capital, which is impacted by AR and AP changes. Working capital balances show the number of 澳洲幸运5官方开奖结果体彩网:current assets a company has to cover its current liabilities. Current assets include cash, accounts receivable expected within one year, and inventory. Current liabilities include accounts payable due wღithin one year and short-term debt pay🀅ments due within one year.

Companies usually report the change in working capital from one 澳洲幸运5官方开奖结果体彩网:reporting period to the next within the operating section of the cash flow statement. If a company has a positive net change in working capital, it increases its current assets to cover its current liabilities, thereby increasing the total cash on the bottom line. A negative change means a company 🥀inꦏcreases its current liabilities, which reduces its ability to pay them efficiently and its total cash on the bottom line.

Solvency Ratios

Companies monitor and analyze liquidity and 澳洲幸运5官方开奖结果体彩网:solvency ratios within cash management. Solvency ratios look at a company’s ability to meet all its obligations in the long term. External stakeholders find these ratios important for analysis purposes. The two main 澳洲幸运5官方开奖结果体彩网:liquidity ratios for cash management include:

The 澳洲幸运5官方开奖结果体彩网:quick ratio is calculated from the following:

Quick Ratio = (Cash Equivalents + Marketable Securities + Accounts Receivable) ÷ Current Liabilities

The 澳洲幸运5官方开奖结果体彩网:current ratio is a little more comprehensive. I൩t is calculated fromꦜ the following:

Current Ratio = Current assets ÷ Current Liabilities

The Bottom Line

Cash management is actively monitoring cash inflows and outflows. It's a process that's important to individuals and businesses. Managing cash efficiently means the entity can keep money in its reserves, pay off its financial obligations, and invest for future development.