- Cash-oriented versus credit-oriented businesses.
Firmsthatareincash-orientedbusinesses(fast-food
restaurants,grocerystores)willrequiremorecashfor
operationsthanfirmsthatoperate incredit-oriented
businesses. - Smallversuslargetransactions.Firmsthatgenerate
theirrevenuesinmultitudesofsmalltransactionsare
morelikelytorequirecashfortheirbusinessesthan
firms that generate revenues in a few large
transactions. It isunlikely that a firmlike Boeing,
which receives its revenues on a few large
transactions,willreceiveorpaycashonmostofits
transactions.Asarelatedpoint,thereshouldbesome
economiesofscalethatallowlargerfirmstomaintain
lower (proportional) operating cash balances than
smaller firms.
4 - Bankingsystem.Asbankingsystemsevolve,fewer
and fewer transactions will be cash based. As a
consequence,wewouldexpectcashrequirementsto
decreaseasbankingsystemsgetmoresophisticated,
allowing customers to pay with credit cards or
checks.
Whilewecandebatehowmuchoperatingcashisneededina
firm,therecanbelittleargumentthatbankingtechnologyand
investment opportunities have improved for most firms in
most economies, leading to lower operating cash
requirements across the board.
Precautionary Motives