Inventories & Cash Balancesraise cash will be higher when annual cash outflows are higher and when the cost per sale of securities is higher.. Payment Float - Checks written by a company
Trang 2Topics Covered
Inventories and Cash Balances
Cash Collection and Disbursement Systems
Bank Relations
Trang 3Inventories & Cash Balances
Economic Order Quantity - Order size that
minimizes total inventory costs
Economic Order Quantity = 2 x annual sales x cost per order
carrying cost
Trang 4Inventories & Cash Balances
Determination of optimal order size
Trang 5Inventories & Cash Balances
raise cash will be higher when annual cash outflows are higher and when the cost per sale of securities is higher Conversely, the initial cash balance falls
when the interest is higher
Initial cash balance = 2 x annual cash outflows x cost per sale of securities
interest rate
Trang 6Inventories & Cash Balances
Money Market - market for short term
financial assets.
Trang 7Inventories & Cash Balances
Value of bills sold = Q =
2 x annual cash disbursement x cost per sale interest rate
2 x 1260 x 20 08
Weeks 0
25
12.5
balance ($000) Cash
Average inventory
=
= 25
(Everyman’s Bookstore)
Trang 8and the moment the funds are deposited in the recipient’s account
Payment Float - Checks written by a company that
have not yet cleared
Availability Float - Checks already deposited that
have not yet cleared
Trang 9Payment Float illustration - The company issues a
$200,000 check that has not yet cleared
Trang 10Payment Float illustration - The company issues a
$200,000 check that has not yet cleared
Company’s ledger balance
$800,000 + Payment float
$200,000
Trang 11Payment Float illustration - The company issues a
$200,000 check that has not yet cleared
Company’s ledger balance
Trang 12Availability Float illustration - The company
deposits a $100,000 check that has not yet cleared
Trang 13Availability Float illustration - The company
deposits a $100,000 check that has not yet cleared
Company’s ledger balance
$900,000 + Payment float
$200,000
Trang 14Availability Float illustration - The company
deposits a $100,000 check that has not yet cleared
Company’s ledger balance
Trang 15Net Float illustration
Net float = payment float - availability float
Trang 16Net Float illustration
Net float = payment float - availability float
Bank’s ledger balance
$1,100,000
Trang 17Net Float illustration
Net float = payment float - availability float
Available balance
$1,000,000 + Availability float
$100,000 equals
Bank’s ledger balance
$1,100,000
Trang 18Managing Float
Payers attempt to create delays in the check
clearing process.
Recipients attempt to remove delays in the
check clearing process.
Sources of delay
Trang 19Managing Float
Check mailed
Trang 20Managing Float
Check mailed
Check received
Mail float
Trang 22float
Trang 23Managing Float
Concentration Banking - system whereby customers
make payments to a regional collection center which transfers the funds to a principal bank
Lock-Box System - System whereby customers send
payments to a post office box and a local bank collects and processes checks
Zero-Balance Accounts - Regional bank accounts to
which just enough funds are transferred daily to pay each day’s bills