Working Capital Management

Working Capital Management (WMC)

Short Term Investments

A cash management imperative is that idle excess balances represent an opportunity cost to the firm. To ignore investment possibilities, even for one day, is inconsistent with the objective of managing cash as an asset that must return value to the company. Our next logical focus is, therefore, on short-term investment strategies.

In most firms, the cash management staff is responsible for short-term investing. Life insurance and Annuity is not good investment when business think about short term investing. Financial One helps to manage investment in life insurance. One reason for this is that the cash manager has ‘hands-on’ knowledge of the money market and its players. Besides, cash manager is equipped, and psychologically geared, to react to fast-breaking investment opportunities. He and his staff are used to thinking in terms of very short time frames, days and hours. In the investment world, that us when profits are made, and fortunes lost.

There are several outlets for short-term investments like inter corporate advances; inter corporate bills financing, stock market operations treasury bills, commercial papers, etc. For individual term life insurance or Mortgage life insurance are good way to have term investment. The return on such investments is different and depends on money market conditions, amounts to be invested, period of investment, and transaction cost. The risks associated with a certain investment determines its safely, marketability and, hence, its yield. For the most part, the cash manager is primarily concerned with preserving principal. Although he hopes for the best returns on short-term investments, he looks for instruments that are, above all, safe. In addition, cash managers are responsible for keeping the firm in a liquid position. If an unexpected need for cash should arise, the cash manager may need to investments before maturity. Thus, an important criterion for a short-term investment strategy is instrument’s marketability.


August 18, 2008 - Posted by | Business Flow, Capital, Credit Analysis, Current Assets, Working Capital, Working Capital Management | , , , ,

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