Question

Why is cash management important for firms?

Answer 1

importance of cash management

Cash management is very much necessary for every firms because it helps the firm to trade-off between liquidity and profitability in order to maximise long-term profit this can be possible if a firm can use the funds of working capital in an efficient way.

Cash is one of the most important components of current assets. Every firm should have adequate cash, neither more nor less. Inadequate cash will lead to production interruptions, while excessive
cash remains idle and will impair profitability. Hence, there is a need for cash management.

The basic objectives of cash management are
(i) to make the payments when they become due
(ii) to minimize the cash balances.