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1 
CChhaapptteerr 99 
CCaasshh aanndd MMaarrkkeettaabbllee 
SSeeccuurriittiieess 
MMaannaaggeemmeenntt
2 
CCaasshh aanndd MMaarrkkeettaabbllee 
SSeeccuurriittiieess MMaannaaggeemmeenntt 
Motives for Holding Cash 
Speeding Up Cash Receipts 
S-l-o-w-i-n-g D-o-w-n 
Cash Payouts 
Cash Balances to Maintain 
Investment in Marketable 
Securities
3 
MMoottiivveess ffoorr HHoollddiinngg CCaasshh 
TTrraannssaaccttiioonnss MMoottiivvee -- to meet 
payments arising in the ordinary 
course of business 
SSppeeccuullaattiivvee MMoottiivvee -- to take 
advantage of temporary opportunities 
PPrreeccaauuttiioonnaarryy MMoottiivvee -- to maintain a 
cushion or buffer to meet unexpected 
cash needs
4 
SSppeeeeddiinngg UUpp 
CCaasshh RReecceeiippttss 
Collections 
Expedite preparing and mailing the 
invoice 
Accelerate the mailing of payments from 
customers 
Reduce the time during which payments 
received by the firm remain uncollected
5 
CCoolllleeccttiioonn FFllooaatt 
PPrroocceessssiinngg 
FFllooaatt 
AAvvaaiillaabbiilliittyy 
FFllooaatt 
CCoolllleeccttiioonn FFllooaatt: total time between the mailing 
of the check by the customer and the availability 
of cash to the receiving firm. 
MMaaiill 
FFllooaatt 
DDeeppoossiitt FFllooaatt
6 
MMaaiill FFllooaatt 
CCuussttoommeerr 
mmaaiillss cchheecckk 
FFiirrmm 
rreecceeiivveess cchheecckk 
MMaaiill FFllooaatt: time the check is in the mail.
7 
PPrroocceessssiinngg FFllooaatt 
FFiirrmm 
ddeeppoossiittss cchheecckk 
FFiirrmm 
rreecceeiivveess cchheecckk 
PPrroocceessssiinngg FFllooaatt: time it takes a company 
to process the check internally.
8 
AAvvaaiillaabbiilliittyy FFllooaatt 
FFiirrmm 
ddeeppoossiittss cchheecckk 
FFiirrmm’’ss bbaannkk 
aaccccoouunntt ccrreeddiitteedd 
AAvvaaiillaabbiilliittyy FFllooaatt: time consumed in clearing 
the check through the banking system.
9 
DDeeppoossiitt FFllooaatt 
PPrroocceessssiinngg FFllooaatt AAvvaaiillaabbiilliittyy FFllooaatt 
DDeeppoossiitt FFllooaatt: time during which the check 
received by the firm remains uncollected funds.
10 
EEaarrlliieerr BBiilllliinngg 
Accelerate preparation and 
mailing of invoices 
computerized billing 
invoices included with shipment 
invoices are faxed 
advance payment requests 
preauthorized debits
11 
PPrreeaauutthhoorriizzeedd PPaayymmeennttss 
PPrreeaauutthhoorriizzeedd ddeebbiitt 
The transfer of funds from a payor’s 
bank account on a specified date to 
the payee’s bank account; the 
transfer is initiated by the payee 
with the payor’s advance 
authorization.
12 
LLoocckkbbooxx SSyysstteemmss 
TTrraaddiittiioonnaall LLoocckkbbooxx 
A post office box maintained by a firm’s bank 
that is used as a receiving point for customer 
remittances. 
EElleeccttrroonniicc LLoocckkbbooxx 
A collection service provided by a firm’s bank 
that receives electronic payments and 
accompanying remittance data and 
communicates this information to the 
company in a specified format.
13 
LLoocckkbbooxx PPrroocceessss** 
Customers are instructed to mail their 
remittances to the lockbox location. 
Bank picks up remittances several times 
daily from the lockbox. 
Bank deposits remittances in the customers 
account and provides a deposit slip with a 
list of payments. 
Company receives the list and any additional 
mailed items. 
* Based on the traditional lockbox system
14 
LLoocckkbbooxx SSyysstteemm 
AAddvvaannttaaggee 
Receive remittances sooner which 
reduces processing float. 
DDiissaaddvvaannttaaggee 
Cost of creating and maintaining a 
lockbox system. Generally, not 
advantageous for small remittances.
15 
CCoonncceennttrraattiioonn BBaannkkiinngg 
CCaasshh CCoonncceennttrraattiioonn 
The movement of cash from lockbox or 
field banks into the firm’s central cash 
pool residing in a concentration bank. 
CCoommppeennssaattiinngg BBaallaannccee 
Demand deposits maintained by a firm 
to compensate a bank for services 
provided, credit lines, or loans.
16 
CCoonncceennttrraattiioonn BBaannkkiinngg 
MMoovviinngg ccaasshh bbaallaanncceess ttoo 
aa cceennttrraall llooccaattiioonn:: 
Improves control over inflows and 
outflows of corporate cash. 
Reduces idle cash balances to a 
minimum. 
Allows for more effective investments 
by pooling excess cash balances.
17 
SS--ll--oo--ww--ii--nn--gg DD--oo--ww--nn 
CCaasshh PPaayyoouuttss 
 “Playing the Float” 
 Control of Disbursements 
 Payable through Draft (PTD) 
 Payroll and Dividend 
Disbursements 
 Zero Balance Account (ZBA)
18 
““PPllaayyiinngg tthhee FFllooaatt”” 
NNeett FFllooaatt -- The dollar difference between 
the balance shown in a firm’s (or 
individual’s) checkbook balance and the 
balance on the bank’s books. 
You write a check today, which is subtracted 
from your calculation of the account balance. 
The check has not cleared, which creates float. 
You can potentially earn interest on money that 
you have “spent.”
19 
CCoonnttrrooll ooff DDiissbbuurrsseemmeennttss 
FFiirrmmss sshhoouulldd bbee aabbllee ttoo:: 
1. shift funds quickly to banks from which 
disbursements are made. 
2. generate daily detailed information on 
balances, receipts, and disbursements. 
SSoolluuttiioonn:: 
Centralize payables into a single (smaller 
number of) account(s). This provides better 
control of the disbursement process.
20 
MMeetthhooddss ooff MMaannaaggiinngg 
DDiissbbuurrsseemmeennttss 
PPaayyaabbllee TThhrroouugghh DDrraafftt ((PPTTDD)):: 
A check-like instrument that is drawn against the 
payor and not against a bank as is a check. After 
a PTD is presented to a bank, the payor gets to 
decide whether to honor or refuse payment. 
DDeellaayyss tthhee ttiimmee ttoo hhaavvee ffuunnddss oonn ddeeppoossiitt 
ttoo ccoovveerr tthhee ddrraafftt.. 
SSoommee ssuupppplliieerrss pprreeffeerr cchheecckkss.. 
BBaannkkss wwiillll iimmppoossee aa hhiigghheerr sseerrvviiccee cchhaarrggee 
dduuee ttoo tthhee aaddddiittiioonnaall hhaannddlliinngg iinnvvoollvveedd..
21 
MMeetthhooddss ooff MMaannaaggiinngg 
DDiissbbuurrsseemmeennttss 
PPaayyrroollll aanndd DDiivviiddeenndd DDiissbbuurrsseemmeennttss 
The firm attempts to determine when payroll and 
dividend checks will be presented for collection. 
MMaannyy ttiimmeess aa sseeppaarraattee aaccccoouunntt iiss sseett uupp ttoo 
hhaannddllee eeaacchh ooff tthheessee ttyyppeess ooff ddiissbbuurrsseemmeennttss.. 
AA ddiissttrriibbuuttiioonn sscchheedduulleedd iiss pprroojjeecctteedd bbaasseedd oonn 
ppaasstt eexxppeerriieenncceess.. [[SSeeee sslliiddee 99--2222]] 
FFuunnddss aarree ddeeppoossiitteedd bbaasseedd oonn eexxppeecctteedd nneeeeddss.. 
MMiinniimmiizzeess eexxcceessssiivvee ccaasshh bbaallaanncceess..
22 
PPeerrcceennttaaggee ooff PPaayyrroollll 
CChheecckkss CCoolllleecctteedd 
100% 
75% 
50% 
25% 
0% 
(Payday) Percent of 
F M T W H F M and after 
PPaayyrroollll CCoolllleecctteedd 
The firm may plan on 
payroll checks being 
presented in a similar 
pattern every pay period.
23 
MMeetthhooddss ooff MMaannaaggiinngg 
DDiissbbuurrsseemmeennttss 
ZZeerroo BBaallaannccee AAccccoouunntt ((ZZBBAA)):: 
A corporate checking account in which a zero 
balance is maintained. The account requires a 
master (parent) account from which funds are 
drawn to cover negative balances or to which 
excess balances are sent. 
 EElliimmiinnaatteess tthhee nneeeedd ttoo aaccccuurraatteellyy 
eessttiimmaattee eeaacchh ddiissbbuurrsseemmeenntt aaccccoouunntt.. 
 OOnnllyy nneeeedd ttoo ffoorreeccaasstt oovveerraallll ccaasshh nneeeeddss..
24 
CCaasshh BBaallaanncceess ttoo MMaaiinnttaaiinn 
TThhee ooppttiimmaall lleevveell ooff ccaasshh sshhoouulldd 
bbee tthhee llaarrggeerr ooff:: 
(1) the transaction balances required 
when cash management is 
efficient. 
(2) the compensating balance 
requirements of commercial 
banks.
25 
IInnvveessttmmeenntt iinn 
MMaarrkkeettaabbllee SSeeccuurriittiieess 
MMaarrkkeettaabbllee SSeeccuurriittiieess aarree sshhoowwnn 
oonn tthhee bbaallaannccee sshheeeett aass:: 
11.. CCaasshh eeqquuiivvaalleennttss iiff mmaattuurriittiieess aarree 
lleessss tthhaann tthhrreeee ((33)) mmoonntthhss aatt tthhee 
ttiimmee ooff aaccqquuiissiittiioonn.. 
22.. SShhoorrtt--tteerrmm iinnvveessttmmeennttss iiff rreemmaaiinniinngg 
mmaattuurriittiieess aarree lleessss tthhaann oonnee ((11)) 
yyeeaarr..
26 
VVaarriiaabblleess iinn MMaarrkkeettaabbllee 
SSeeccuurriittiieess SSeelleeccttiioonn 
SSaaffeettyy 
Refers to the likelihood of getting back the 
same number of dollars you originally 
invested (principal). 
MMaarrkkeettaabbiilliittyy ((oorr LLiiqquuiiddiittyy)) 
The ability to sell a significant volume of 
securities in a short period of time in the 
secondary market without significant price 
concession.
27 
VVaarriiaabblleess iinn MMaarrkkeettaabbllee 
SSeeccuurriittiieess SSeelleeccttiioonn 
IInntteerreesstt RRaattee ((oorr YYiieelldd)) RRiisskk 
The variability in the market price of a 
security caused by changes in 
interest rates. 
MMaattuurriittyy 
Refers to the remaining life of the 
security.
28 
CCoommmmoonn MMoonneeyy 
MMaarrkkeett IInnssttrruummeennttss 
MMoonneeyy MMaarrkkeett IInnssttrruummeennttss 
All government securities and short-term 
corporate obligations. (Broadly defined) 
 TTrreeaassuurryy BBiillllss ((TT--bbiillllss)):: Short-term, 
non-interest bearing obligations 
issued at a discount and redeemed at 
maturity for full face value. Minimum 
$1,000 amount.
29 
CCoommmmoonn MMoonneeyy 
MMaarrkkeett IInnssttrruummeennttss 
 TTrreeaassuurryy NNootteess:: Medium-term 
(2-10 years’ original maturity) 
obligations of the U.S. Treasury. 
 TTrreeaassuurryy BBoonnddss:: Long-term 
(more than 10 years’ original 
maturity) obligations of the U.S. 
Treasury.
30 
CCoommmmoonn MMoonneeyy 
MMaarrkkeett IInnssttrruummeennttss 
 RReeppuurrcchhaassee AAggrreeeemmeennttss ((RRPPss;; 
rreeppooss)):: Agreements to buy securities 
(usually Treasury bills) and resell 
them at a higher price at a later date. 
 BBaannkkeerrss’’ AAcccceeppttaanncceess ((BBAAss)):: Short-term 
promissory trade notes for 
which a bank (by having “accepted” 
them) promises to pay the holder the 
face amount at maturity.

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Cash and marketable securities

  • 1. 1 CChhaapptteerr 99 CCaasshh aanndd MMaarrkkeettaabbllee SSeeccuurriittiieess MMaannaaggeemmeenntt
  • 2. 2 CCaasshh aanndd MMaarrkkeettaabbllee SSeeccuurriittiieess MMaannaaggeemmeenntt Motives for Holding Cash Speeding Up Cash Receipts S-l-o-w-i-n-g D-o-w-n Cash Payouts Cash Balances to Maintain Investment in Marketable Securities
  • 3. 3 MMoottiivveess ffoorr HHoollddiinngg CCaasshh TTrraannssaaccttiioonnss MMoottiivvee -- to meet payments arising in the ordinary course of business SSppeeccuullaattiivvee MMoottiivvee -- to take advantage of temporary opportunities PPrreeccaauuttiioonnaarryy MMoottiivvee -- to maintain a cushion or buffer to meet unexpected cash needs
  • 4. 4 SSppeeeeddiinngg UUpp CCaasshh RReecceeiippttss Collections Expedite preparing and mailing the invoice Accelerate the mailing of payments from customers Reduce the time during which payments received by the firm remain uncollected
  • 5. 5 CCoolllleeccttiioonn FFllooaatt PPrroocceessssiinngg FFllooaatt AAvvaaiillaabbiilliittyy FFllooaatt CCoolllleeccttiioonn FFllooaatt: total time between the mailing of the check by the customer and the availability of cash to the receiving firm. MMaaiill FFllooaatt DDeeppoossiitt FFllooaatt
  • 6. 6 MMaaiill FFllooaatt CCuussttoommeerr mmaaiillss cchheecckk FFiirrmm rreecceeiivveess cchheecckk MMaaiill FFllooaatt: time the check is in the mail.
  • 7. 7 PPrroocceessssiinngg FFllooaatt FFiirrmm ddeeppoossiittss cchheecckk FFiirrmm rreecceeiivveess cchheecckk PPrroocceessssiinngg FFllooaatt: time it takes a company to process the check internally.
  • 8. 8 AAvvaaiillaabbiilliittyy FFllooaatt FFiirrmm ddeeppoossiittss cchheecckk FFiirrmm’’ss bbaannkk aaccccoouunntt ccrreeddiitteedd AAvvaaiillaabbiilliittyy FFllooaatt: time consumed in clearing the check through the banking system.
  • 9. 9 DDeeppoossiitt FFllooaatt PPrroocceessssiinngg FFllooaatt AAvvaaiillaabbiilliittyy FFllooaatt DDeeppoossiitt FFllooaatt: time during which the check received by the firm remains uncollected funds.
  • 10. 10 EEaarrlliieerr BBiilllliinngg Accelerate preparation and mailing of invoices computerized billing invoices included with shipment invoices are faxed advance payment requests preauthorized debits
  • 11. 11 PPrreeaauutthhoorriizzeedd PPaayymmeennttss PPrreeaauutthhoorriizzeedd ddeebbiitt The transfer of funds from a payor’s bank account on a specified date to the payee’s bank account; the transfer is initiated by the payee with the payor’s advance authorization.
  • 12. 12 LLoocckkbbooxx SSyysstteemmss TTrraaddiittiioonnaall LLoocckkbbooxx A post office box maintained by a firm’s bank that is used as a receiving point for customer remittances. EElleeccttrroonniicc LLoocckkbbooxx A collection service provided by a firm’s bank that receives electronic payments and accompanying remittance data and communicates this information to the company in a specified format.
  • 13. 13 LLoocckkbbooxx PPrroocceessss** Customers are instructed to mail their remittances to the lockbox location. Bank picks up remittances several times daily from the lockbox. Bank deposits remittances in the customers account and provides a deposit slip with a list of payments. Company receives the list and any additional mailed items. * Based on the traditional lockbox system
  • 14. 14 LLoocckkbbooxx SSyysstteemm AAddvvaannttaaggee Receive remittances sooner which reduces processing float. DDiissaaddvvaannttaaggee Cost of creating and maintaining a lockbox system. Generally, not advantageous for small remittances.
  • 15. 15 CCoonncceennttrraattiioonn BBaannkkiinngg CCaasshh CCoonncceennttrraattiioonn The movement of cash from lockbox or field banks into the firm’s central cash pool residing in a concentration bank. CCoommppeennssaattiinngg BBaallaannccee Demand deposits maintained by a firm to compensate a bank for services provided, credit lines, or loans.
  • 16. 16 CCoonncceennttrraattiioonn BBaannkkiinngg MMoovviinngg ccaasshh bbaallaanncceess ttoo aa cceennttrraall llooccaattiioonn:: Improves control over inflows and outflows of corporate cash. Reduces idle cash balances to a minimum. Allows for more effective investments by pooling excess cash balances.
  • 17. 17 SS--ll--oo--ww--ii--nn--gg DD--oo--ww--nn CCaasshh PPaayyoouuttss “Playing the Float” Control of Disbursements Payable through Draft (PTD) Payroll and Dividend Disbursements Zero Balance Account (ZBA)
  • 18. 18 ““PPllaayyiinngg tthhee FFllooaatt”” NNeett FFllooaatt -- The dollar difference between the balance shown in a firm’s (or individual’s) checkbook balance and the balance on the bank’s books. You write a check today, which is subtracted from your calculation of the account balance. The check has not cleared, which creates float. You can potentially earn interest on money that you have “spent.”
  • 19. 19 CCoonnttrrooll ooff DDiissbbuurrsseemmeennttss FFiirrmmss sshhoouulldd bbee aabbllee ttoo:: 1. shift funds quickly to banks from which disbursements are made. 2. generate daily detailed information on balances, receipts, and disbursements. SSoolluuttiioonn:: Centralize payables into a single (smaller number of) account(s). This provides better control of the disbursement process.
  • 20. 20 MMeetthhooddss ooff MMaannaaggiinngg DDiissbbuurrsseemmeennttss PPaayyaabbllee TThhrroouugghh DDrraafftt ((PPTTDD)):: A check-like instrument that is drawn against the payor and not against a bank as is a check. After a PTD is presented to a bank, the payor gets to decide whether to honor or refuse payment. DDeellaayyss tthhee ttiimmee ttoo hhaavvee ffuunnddss oonn ddeeppoossiitt ttoo ccoovveerr tthhee ddrraafftt.. SSoommee ssuupppplliieerrss pprreeffeerr cchheecckkss.. BBaannkkss wwiillll iimmppoossee aa hhiigghheerr sseerrvviiccee cchhaarrggee dduuee ttoo tthhee aaddddiittiioonnaall hhaannddlliinngg iinnvvoollvveedd..
  • 21. 21 MMeetthhooddss ooff MMaannaaggiinngg DDiissbbuurrsseemmeennttss PPaayyrroollll aanndd DDiivviiddeenndd DDiissbbuurrsseemmeennttss The firm attempts to determine when payroll and dividend checks will be presented for collection. MMaannyy ttiimmeess aa sseeppaarraattee aaccccoouunntt iiss sseett uupp ttoo hhaannddllee eeaacchh ooff tthheessee ttyyppeess ooff ddiissbbuurrsseemmeennttss.. AA ddiissttrriibbuuttiioonn sscchheedduulleedd iiss pprroojjeecctteedd bbaasseedd oonn ppaasstt eexxppeerriieenncceess.. [[SSeeee sslliiddee 99--2222]] FFuunnddss aarree ddeeppoossiitteedd bbaasseedd oonn eexxppeecctteedd nneeeeddss.. MMiinniimmiizzeess eexxcceessssiivvee ccaasshh bbaallaanncceess..
  • 22. 22 PPeerrcceennttaaggee ooff PPaayyrroollll CChheecckkss CCoolllleecctteedd 100% 75% 50% 25% 0% (Payday) Percent of F M T W H F M and after PPaayyrroollll CCoolllleecctteedd The firm may plan on payroll checks being presented in a similar pattern every pay period.
  • 23. 23 MMeetthhooddss ooff MMaannaaggiinngg DDiissbbuurrsseemmeennttss ZZeerroo BBaallaannccee AAccccoouunntt ((ZZBBAA)):: A corporate checking account in which a zero balance is maintained. The account requires a master (parent) account from which funds are drawn to cover negative balances or to which excess balances are sent. EElliimmiinnaatteess tthhee nneeeedd ttoo aaccccuurraatteellyy eessttiimmaattee eeaacchh ddiissbbuurrsseemmeenntt aaccccoouunntt.. OOnnllyy nneeeedd ttoo ffoorreeccaasstt oovveerraallll ccaasshh nneeeeddss..
  • 24. 24 CCaasshh BBaallaanncceess ttoo MMaaiinnttaaiinn TThhee ooppttiimmaall lleevveell ooff ccaasshh sshhoouulldd bbee tthhee llaarrggeerr ooff:: (1) the transaction balances required when cash management is efficient. (2) the compensating balance requirements of commercial banks.
  • 25. 25 IInnvveessttmmeenntt iinn MMaarrkkeettaabbllee SSeeccuurriittiieess MMaarrkkeettaabbllee SSeeccuurriittiieess aarree sshhoowwnn oonn tthhee bbaallaannccee sshheeeett aass:: 11.. CCaasshh eeqquuiivvaalleennttss iiff mmaattuurriittiieess aarree lleessss tthhaann tthhrreeee ((33)) mmoonntthhss aatt tthhee ttiimmee ooff aaccqquuiissiittiioonn.. 22.. SShhoorrtt--tteerrmm iinnvveessttmmeennttss iiff rreemmaaiinniinngg mmaattuurriittiieess aarree lleessss tthhaann oonnee ((11)) yyeeaarr..
  • 26. 26 VVaarriiaabblleess iinn MMaarrkkeettaabbllee SSeeccuurriittiieess SSeelleeccttiioonn SSaaffeettyy Refers to the likelihood of getting back the same number of dollars you originally invested (principal). MMaarrkkeettaabbiilliittyy ((oorr LLiiqquuiiddiittyy)) The ability to sell a significant volume of securities in a short period of time in the secondary market without significant price concession.
  • 27. 27 VVaarriiaabblleess iinn MMaarrkkeettaabbllee SSeeccuurriittiieess SSeelleeccttiioonn IInntteerreesstt RRaattee ((oorr YYiieelldd)) RRiisskk The variability in the market price of a security caused by changes in interest rates. MMaattuurriittyy Refers to the remaining life of the security.
  • 28. 28 CCoommmmoonn MMoonneeyy MMaarrkkeett IInnssttrruummeennttss MMoonneeyy MMaarrkkeett IInnssttrruummeennttss All government securities and short-term corporate obligations. (Broadly defined)  TTrreeaassuurryy BBiillllss ((TT--bbiillllss)):: Short-term, non-interest bearing obligations issued at a discount and redeemed at maturity for full face value. Minimum $1,000 amount.
  • 29. 29 CCoommmmoonn MMoonneeyy MMaarrkkeett IInnssttrruummeennttss  TTrreeaassuurryy NNootteess:: Medium-term (2-10 years’ original maturity) obligations of the U.S. Treasury.  TTrreeaassuurryy BBoonnddss:: Long-term (more than 10 years’ original maturity) obligations of the U.S. Treasury.
  • 30. 30 CCoommmmoonn MMoonneeyy MMaarrkkeett IInnssttrruummeennttss  RReeppuurrcchhaassee AAggrreeeemmeennttss ((RRPPss;; rreeppooss)):: Agreements to buy securities (usually Treasury bills) and resell them at a higher price at a later date.  BBaannkkeerrss’’ AAcccceeppttaanncceess ((BBAAss)):: Short-term promissory trade notes for which a bank (by having “accepted” them) promises to pay the holder the face amount at maturity.