Working Capital Management

Working Capital Management (WMC)

OPTIMIZATION MODELS FOR 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. 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. 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.

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December 25, 2008 - Posted by | Business Flow, Capital, cash loans, Credit Analysis, Current Assets, Working Capital, Working Capital Management | , , , , , , , ,

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