316 Corporate Finance
Reviews are conducted every quarter and remedial actions are taken. As can be seen, DCBL is a cash
rich company.
The contents of the cash budget can be thus grouped: operating, financing and investment activities just
like the cash flow statement.
Operating activities are the principal revenue producing activities of an enterprise (and those activities
that are not investment and financing activities). Examples are:
- Cash receipts from the sale of goods and the rendering of services.
- Cash payments to suppliers of goods and services.
- Cash payments to and on behalf of employees.
- Income tax.
Investing activities include acquisition and disposal of long-term assets required to facilitate operating
activities. Examples are:
- Cash payments for acquiring fixed assets.
- Cash receipts from disposal of fixed assets.
- Cash payments to acquire shares, warrants and debt instruments of other companies.
- Cash receipts from disposal of warrants and debt instruments of other companies.
Financing activities are activities that result in changes in the size and composition of the owners’ capital
and borrowings of the enterprise. Examples are:
- Cash proceeds from issuing shares or other similar instruments.
- Cash payments to owners to acquire or redeem the enterprise’s share.
- Cash repayments of amounts borrowed.
- Cash proceeds from issuing debt instruments.
Cash Management Services in India
Management of cash flow is an important function for every business organization. An efficient cash flow
management requires faster conversion of receivables into cash. Banks play a crucial role in cash management
of companies. Indeed, banks are partners in managing working capital. Many banks offer cash management
services (CMS) to companies. A bank’s main activity is collection and payment of cheques. The introduction
of electronic banking services has provided faster delivery mechanism. The general requirements for the
cash management system to succeed are that checks deposited at the bank to be realized faster, the collected
funds to be pooled at a required center for better utilization and a strong management information system (MIS)
support for reconciliation.
The traditional banking system requires an organization to open accounts at various locations, deposit
cheques in these accounts, monitor collections, transfer excess funds to corporate treasury on regular basis,
reconcile accounts, and control operations.
Some of the limitations and disadvantages of traditional system are thus outlined:
- Oganizations are deprived of timely access to funds of their own for profitable deployment, for reasons
such as: