Financial managers are responsible for cash management. This responsibility demands that the financial manager maintains adequate balances of cash and marketable securities. And also see to the efficient operation of cash management at the lowest cost possible.


What are cash and marketable securities?

Cash is the currency on hand and in the demand deposit (checking account) balances maintained at the bank.
Marketable securities are short term securities ranging from overnight loans to maturities of less than a year. They are securities that are quickly converted to cash.

The financial manager has a job to establish optimal cash balances that minimizes idle cash balances that earn nothing and also maintain sufficient cash balances that meet anticipated and unanticipated cash needs.

Before the financial manager could establish optimal cash balances successfully, they have to examine the following considerations and costs:

Select a planning timeframe within which to estimate cash inflows and cash outflows expected to occur expected to occur in each sub period within the time frame. This would require the construction of a cash budget with a forecast on the collection of accounts receivable,
2. The cash budget should be constructed to predict times when shortfall could be expected. This is important because every shortfall incurs costs. These costs could be transactions costs associated with raising cash. Or they could be costs associated with deteriorating credit rating.

3. There are also costs associated with having excessive cash balances. Too much idle cash is a indication of missed investment opportunities. Ideally, every fund should be invested, if only temporarily, at a positive rate of interest....More at:



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