The factors that determine the required cash balances are: (i) synchronization of cash flows, OJ) short costs, (iii) excess cash balance. (iv) procurement and management, and (v) uncertainty.

Synchronisation of Cash Flows

The need for maintaining cash balances from the non synchronisation of the inflows and outflows of cash: if the receipts and payments-of cash perfectly coincide’ or balance each other, there would be no need for cash balances. The first consideration in determining the cash need is, therefore, the extent of non-synchronisation of cash receipts and disbursements. For this purpose, the inflows and outflows have to be forecast-over a period of time, depending upon the planning horizon which is typically a one-year period with each of the 12 months being a sub period. The technique adopted is a cash budget. The preparation of a cash budget is discussed in the next section of this chapter. A properly prepared budget will pinpoint the months / periods when the firm will have an excess or a shortage of cash,

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