How is cash managed

FINANCE

Finance: Cash Managing

Cash management is critical to the success of any business, particularly working capital management. Working capital includes all the required ingredients for managing the entire cash of the company, such as cash flow, current assets, liabilities, and cash ratio analysis (Tuovila, 2022). Maximization of profits would only be possible if effective production, stock, and operation management is done in alignment with the cash available at hand.

Efficacious inventory management is one of the critical factors in managing cash so that a high net working capital could be attained. Slow-moving inventory is the most undesirable thing for companies despite being an asset, it might become an overload for handling and adding to the costs of the firm. Hence, longer inventory turnover periods are one of the ways companies manage their cash effectively (Aldubhani et al., 2022).

Furthermore, Miller-Orr model is another useful tool for managing cash conveniently since liquidity and profitability could be scrutinized deeply for assessing the optimal value of the company (Morshed, 2020). Moreover, managing the cash conversion cycle is a useful strategy that companies use for managing cash. The conversion cycle determines less debt required by the firm and stronger equity financing, therefore, higher returns (Ebben & Johnson, 2011). Further, liquid ratios are used by the firms to enhance their cash management skills since fewer of the liquid ratios would depict higher capability of asset management, which afterward could be used to invest in new projects and exhibit higher firm value (Kontus & Mihanovic, 2019).