Cash Management

  

Categories: Banking, Bonds, Investing

Cash management is all of the cash-related doings in a business: collecting cash, spending cash, investing cash, counterfeiting cash, etc.

Good cash management means it's done efficiently, allowing the business to run itself in a financially stable manner with all the i's dotted and t's crossed...all the lawyers happy and peppy and certain that they'll get paid their usurous fees.

Why does this hoary topic even matter? Because companies often have tons and tons (and tons) of cash...and debt. And the difference of half a percent in returns from investing that cash is often a big needle-mover in the scheme of things. See Money Market and Commercial Paper.

If nothing else, the goal of cash management is to remain solvent, meaning the company can pay for all of its long-term obligations. After that, cash management can be used to increase profitability and keep the company stable when facing unexpected expenses. That’s how teasuries do.

Related or Semi-related Video

Finance: What is a Money Market Fund?80 Views

00:00

finance a la shmoop. what is a money market fund? isn't it a strange concept

00:08

to think about going to a market to buy money? [man walks through grocery store]

00:12

well yeah it's strange but the practice exists and it's a huge multi trillion

00:17

dollar market today. the key word here is money and not investment. why such a big

00:23

diff? well because the notion of investing implies duration. that is when

00:28

you invest in a nice fixer-upper home or a tractor distribution company or shares

00:34

in a fat dividend-paying bank you're investing for presumably a long time [people stand in line]

00:40

like years maybe decades maybe centuries if you can find the right miracle pill.

00:44

but here we're talking about money like the stuff you can buy candy with. so it's

00:49

short term not long and a money market fund basically comprises many series of

00:55

pretty safe bonds that are all coming due in the next 30 to 90 days. sometimes [pie chart]

01:00

longer than that sometimes shorter but generally in the very near future. so why

01:04

would you care about a money market fund? well because it pays you slightly more

01:09

interest on your money than say a bank checking account. and lots of people in

01:13

corporations need cash just sitting around to pay their bills, so there are

01:18

tons of money market funds out there available and that's the gist of a money

01:21

market fund. we're sure you'll have plenty of experience with them by the

01:25

time you hit your sixth hundredth birthday day [people cheer and hold birthday cake]

Up Next

Finance: What are Government Bonds?
52 Views

What are government bonds? Uncle Sam needs dough. He sells bonds in the form of T-Bills, T-Notes, Treasury paper of all flavors. His credo? The cre...

Finance: What are Treasury Bills?
15 Views

What are Treasury Bills? Like other debt finance platforms, the US government issues its debt in several ways, and has different terms for each. Tr...

Finance: What are T-Notes, T-Bonds and TIPS?
16 Views

What are T-Notes, T-Bonds, and TIPS? T-Notes are debt securities (like bonds) that are issued by the government and mature within one to 10 years....

Find other enlightening terms in Shmoop Finance Genius Bar(f)