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EXECUTIVE SUMMARY Strides Arcolab Ltd is one of Indias leading integrated manufacturers and exporter of finished pharmaceutical dosage forms both branded and generic, which is located in city Bangalore. Strides ha e !" world#class plants in India, $.S.A, Bra%il, &exico, 'oland and Italy offering their partners the ad antage of multi#locational product sourcing. Strides ha e mar(eting presence in )) countries. Strides are one of Indias largest exporters of branded generic pharmaceutical products. Strides manufacture pharmaceuticals formulations in arious dosage forms, including capsules, tablets and li*uid in+ectables. It is one of the worlds top fi e manufacturers of soft gel capsules. Strides also ha e the only globally dedicated soft gel facility for hormones. In addition, Strides underta(es contract research and the manufacturing of specialty chemicals for arious multinational companies.

Definition and Importance of the Study ,he study entitled -Analysis of .ash &anagement of Strides Arcolab Ltd,/ it co ers the study of organi%ation and cash management of the organi%ation. ,he study was conducted to understand the current cash management system of Strides Arcolab Ltd. Since the study consists of study of existing cash management system, cash budgeting and surplus cash management with &iller#0rr model. The Prob em Identified ,he following problems found in Strides Arcolab Ltd. 'roblem of cash management. 'roblem of debt collection system. &anagement of surplus cash. 'roblem of accounts recei ables management. 'roblem of wor(ing capital management.

!b"ecti#e of the Study ,o study the o erall cash management in Strides Arcolab Limited. ,o classify arious expenses. ,o prepare cash budget for a year. ,o manage in estment of surplus cash.

$ocation of Study Study was conducted at Strides Arcolab Limited. Bele(allhi, Bangalore.

Duration of Study ,he duration of the study is six wee(s

Methodo o%y ,he re*uired information for the study is collected through primary and secondary data.

Primary Data 'ersonal obser ation and collection of data. Inter iew with respecti e personnel of the company.

Secondary Data Secondary data was collected from arious sources such as 1inancial 2ecords of Strides Arcolab Limited.

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,ext boo(s of financial management. 4ews 'apers and &aga%ines. 5ebsites.

Reference 1inancial &anagement#I& 'andey, 6i(as publications &r. 7han 8 '.7. 9ain, 1inancial &anagement, ,ata &c :raw ;ill.

I&TR!DUCTI!& 'harmaceutical consists of two main components, the Acti e 'harmaceutical Ingredient <A'I= or bul( drug and the formulation. A'Is are either produced by chemical synthesis or are of plant, animal, or biological origin. 'atents are critical aspects in the de elopment and mar(eting of pharmaceutical products. A patent can be obtained for a new drug module, a new indication for an existing product. ,he 5orld ,rade 0rgani%ation <5,0= has decided to enforce a product patent life of 3> year in all countries. ,he excessi e cost of drug de elopment forces, drug price to remain high while patents protect the drugs. ,he global pharma industry is ? "@> billion worth with the Indian mar(et worth of "." billion. It ran(s !Ath among drug producing countries in alue terms with an @B share of the global pharmaceutical production mar(et. ,he India pharmaceutical industry has been growing at a .ompounded Annual :rowth 2ate <.A:2= of !).@B for the last fi e years. ;owe er, the annual per capita expenditure on drugs in India is amongst the lowest in the world. Crug prices ary from country to country. .iti%en in de eloping countries cannot afford expensi e medicines that are under patents. &ultinational companies must either choose to sell a product at a lower price in these countries or face the challenges of piracy of parallel trade. ,he type of diseases in de eloping countries may ary from those in de eloped nations. ;owe er, because of lac( of si%eable profits from distributing pharmaceutical product in de eloping countries, multinational corporations are reluctant to conduct research to de elop new drug molecules to treat these diseases.

,he Indian pharmaceutical industry is (now ledge dri en and is hea ily dependent on research and de elopment for new products for growth. ;owe er basic research is a time consuming and expensi e process and so this dominated by big multinationals Indian companies ha e recently started gi ing more emphasis to research and de elopment. ,he a erage 28C spent in India. In spite of growing .A:2 of !@B o er the lost fi e years are +ust !DB of sales as against D#!>B spent by global pharma companies. Indian companies are stepping up their research acti ities to ma(e themsel es more self sufficient in terms of product de elopment ahead of the year 3>>) deadline to switch from process potent to product potent. In India the licensing procedure for different formulations was different in e ery state. ,he state drug controller was the licensing authority. 5hen the manufacturer pro ided sufficient data for any formulations it was appro ed. ,he procedure adopted by the licensing authority was different. 1rom the year 3>>> the manufacturers ha e to get the chance of drugs controller general India for any new introduction may be a single molecule and combination. Effort' by the Indian (o#ernment to Stren%then the Indian Pharmaceutica Indu'try

,he Indian go ernment is encouraging pri ate and public sector as well as foreign in estors to increase in estments in pharmaceutical research and de elopment. Some positi e steps ta(en by the go ernment in recent years areE 2ecognition of the pharmaceutical industry as (nowledge based industry. 2eduction in in estment rate for exports financing. Additional tax deductions for 28C expenses. 2eduction in the price control of pharmaceutical.

Strides Arcolab Ltd established in !DD>, Strides is one of Indias leading integrated manufacturers and exporter of finished pharmaceutical dosage forms both branded and generic. ,hey are a significant global player in soft gelatin capsules and sterile parenteral with *uality standards that meet the most stringent regulated mar(et standards. Strides ha e !" world#class plants in India, $.S.A, Bra%il, &exico, 'oland and Italy offering their partners the ad antage of multi#locational product sourcing. Strides are among the worlds top ) soft gel capsule manufacturers with plants in India and an $S 1CA inspected plant in the $.S.A. Strides ha e mar(eting presence in )) countries. ,his broad networ( facilitates partnering with global organi%ations ranging from $4I.F1, $4C', :lobal ,B Crug 1acility, ,he .linton 1oundation to Furopean and American pharma giants and e en pri ate labelers and distribution chains. In addition, they underta(e .ontract 2esearch 8 &anufacturing of Specialty .hemicals. As pharma companies reach out to enhance their strength and competiti eness, their (ey re*uirement is for a synergistic partner. A partner who is truly global in s(ill sets, 28C, manufacturing practices and in attitude and ision. At Strides, they are partners to more than !> of the worlds top )> pharma ma+ors in Australia, South Africa, Furope, and $SA. At Strides, GHuality per ades all areas of their operations. F ident from the IS0 D>>!, :&' and :L' Accreditations held by their plants, labs and the numerous *uality awards they ha e won.

,he 28C centre at Bangalore, STAR <Strides ,echnology and research= is the global pharmaceutical research centre of the Strides :roup where 3>> top notch researchers are brea(ing new ground in pharmaceutical research. They )ocu' on .linical supplies manufacturing 'rocess de elopment Analytical ser ices 'ac(aging de elopment &icrobiological testing

7ey acti ities at S,A2 include identification and characteri%ation of the reference drug, information on drug product, patent and regulatory re iew, pre#formulation studies, formula de elopment, analytical method de elopment, analytical method alidation, pac(aging de elopment, scale up from lab scale, stability studies, bioe*ui alence studies, preparation and submission of technical dossier. Cosage form capabilities at S,A2 include tablets, soft gel capsules, hard gel capsules, lyophili%ed in+ectables, dry powder parenterals, li*uid in+ectables, ointments and li*uids. Strides ha e !" world#class plants in India, $.S.A, Italy, 'oland, Bra%il and &exico, all conforming to 5;0s c:&' guidelines. ,heir oral dosage forms plant in Bangalore is appro ed by &;;2A, ,:A, &.., A46ISA and a host of regulatory authorities from countries in Asia and Africa. ,his plant is also pre#*ualified by 5;0 for manufacture of ;I6J AICS and anti ,B drugs and is appro ed by $S1CA under 'F'1A2. ,hey ha e dedicated facilities for the manufacture of cephalosporins, beta lactams and anti ,B products <colored=. ,heir dosage forms range includes tablets, capsules, soft gelatin capsules, parenterals and semi# solids.

Strides are one of Indias largest exporters of branded generic pharmaceutical products. Strides manufacture pharmaceuticals formulations in arious dosage forms, including capsules, tablets and li*uid in+ectables. It is one of the worlds top fi e manufacturers of soft gel capsules. Strides also ha e the only globally dedicated soft gel facility for hormones. In addition, Strides underta(es contract research and the manufacturing of specialty chemicals for arious multinational companies. Strides ha e a ma+or presence in arious de eloping countries such as Africa, Latin America and Asia as well as in de eloped mar(ets such as the $S, .anada and part of Furope. Strides is one of the largest Indian suppliers of institutionally funded aid pro+ects and are an appro ed supplier to the 5orld Ban(, the African Ce elopment Ban( and $4I.F1, amongst others. Strides has !" manufacturing plants spread across the $S, Bra%il, &exico, Italy, 'oland and India. ,his broad manufacturing networ( facilities partnering with global organi%ations ranging from $4I.F1 and 5;0#:lobal Crug 1acility to Furopean and American pharmaceutical multinationals and also pri ate labelers and distribution chains. A stride has product registrations in o er "K countries around the world and has earned IS0 D>>!, IS0 !A>>! and :&' accreditations including $S1CA. Strides employ approximately !,K>> people across the globe. Strides also ha e a mar(eting presence in o er )> countries. In +ust o er a decade, Strides Arcolab has grown phenomenally to become one of Indias largest exporters of pharmaceutical formulations. As a group, our annual sales approach ?!>> million in 3>>" # 3>>A. Strategically, we ha e re#oriented our positioning to capture a greater share of the regulated mar(ets. ,he group ethos is based on -leadership through partnering/. 0ur foray into the regulated mar(ets is in partnership with pharma ma+ors. 5e ha e also launched global initiati es to promote products for ;I6JAICS, tuberculosis and malaria. 0ur 28C department is being expanded to further enhance *uality dri en processes and drug de elopment capabilities.

Ca'h Mana%ement .ash is the oxygen that enables a business to sur i e and prosper, and is the primary indicator of business health. 5hile a business can sur i e for a short time without sales or profits, without cash it will die. .ash is probably the most ulnerable asset in any organi%ation. .ash is easily stolen, lost, misused, uncollected, improperly mismanaged and often lac(s ade*uate written policies and procedures <control measures=. .ash is often improperly monitored by management or ignored all together. Fffecti e cash management is imperati e in e ery business organi%ation, whether for profit or not for profit. .ash consists of unrestricted and restricted cash accounts, chec(ing and sa ing accounts, certificate of deposits, treasury bills, money mar(et funds, commercial funds and federal go ernment funds are all cash e*ui alents. All cash and cash e*ui alents must be disclosed as current assets in financial statements in accordance with :AA' <:enerally Accepted Accounting 'rinciples=. Fffecti e cash management must be incorporate accuracy, completeness, authori%ation, existence, disclosure and reporting o erall cash acti ities and the cash cycle within the organi%ation. &anagement re*uires the control o er cash so that future business planning, forecasts, and pro+ects can be made, as well as for the production and issuance of the entitys financial statements to stoc(holders, in estors and financiers. .ash is the bac(bone of business transactions, despite the nature of business and personal society. ,he cash cycle consists of se eral (ey components, regardless of industry type, profit moti ation, and the form of organi%ation of the business. ,he re enue generates cash and financing functions of the business and cash is expended by the operating and ac*uisition acti ities. ,herefore, e ery organi%ation must effecti ely manage its cash flow ac*uire cash, spend cash, anticipate cash needs, and report on sources and uses of cash.

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.ash management is the one of the (ey area of wor(ing capital management. Apart from the fact that it is the most li*uid .urrent asset. .ash is the common domination to which all the current assets can be reduced because the other current assets, which are recei ables and in entory, get e entually con erted into the cash. ,hese underline the significance of cash management. 1inance is the lifeblood of the business. In the post modern highly competiti e business world finance is the ery essential factor for e ery transaction. 5ithout finance, none can set up the business. Cirect and indirect expenses needs cash and ban( balance. 2aw material purchasing, maintenance wor( expenses and employees salary are the ma+or expenses met by the organi%ation.

!b"ecti#e' of ca'h mana%ement ,o highly li*uid ital asset is cash. It is needed to meet e ery type of expenditure. ;ence, it should be sufficiently made a ailable. If a firm fails to pro ide funds meet the obligation, it will be clear indication technical insol ency of the firm. If the cash position of the firm is strongL it can command the business operations. ,he ob+ecti es of cash management are ,o ma(e cash payments ,o maintain minimum cash reser e

!= To ma*e ca'h payment' 6ery important of holding cash is to meet the arious types of expenditure to be incurred in the business operations. Se eral type of expenditure has to be met at different paints of time and the firm should be prepared to ma(e such payments. ,he firm should remain li*uid to meet the obligations. 0therwise the business suffers. ,he basic ob+ecti e of cash management is to maintain

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the image of the organi%ation by ma(ing prompt payments to creditors and to a ail cash discount facilities.

3+ To maintain minimum ca'h re'er#e ,his means in the process of meeting obligation on time, the firm should not unnecessarily maintain hea y cash reser e. It cannot (eep the cash idle. Fxcess cash balance should be made producti e. &aintaining minimum cash reser e is made possible by synchroni%ing cash inflows and out flows through cash budgeting to attain the ob+ecti es of profitability.

)unction' of Ca'h Mana%ement ,o achie e ob+ecti e the financial manager has to ensure that in estment in cash is efficiently utili%ed. 1or that manner he has to manage cash collections and disbursements efficiently determine the appropriate cash balances and in est surplus cash. Ffficient cash management functions calls for cash planning e aluations of benefits and cost of polices, procedure and practices and synchroni%ation of cash in flows and out flows. It is significant to note that cash management functions are intimately interrelated and inter ened. Lin(age among different cash management functions has lead to the adoption of the following methods for efficient cash management. $se of techni*ues of cash mobili%ations to reduce operating e*uipment of cash &a+or efforts to increase the precision and reliability cash forecasting. &aximum efforts to define and *uantified the li*uidity reser e needs of the firms. Ce elopment of explicit alternati e source of li*uidity Aggressi e search for relati e more producti e uses for surplus money assets

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,he abo e approaches in ol es the following action a finance manager has to perform ,o forecast cash inflows and outflows ,o plan cash e*uipment ,o determine the safety le el of cash ,o monitor the safety le el of cash ,o locate the needed funds ,o regulate cash in flows ,o regulate cash out flows ,o determine criteria for in estment of excess cash ,o a ail ban(ing facilities and maintaining good relations with ban(ers

,hus for achie ing the goals of cash management, a finance manager has to plan cash needs of the firm. ,his s followed by the management of cash flows determinations of optimum le el of cash finally in estment of surplus cash

T,E PR!-$EM IDE&TI)IED ,he following problems found in Strides Arcolab Limited. 'roblem of cash management. 'roblem of debt collection system. &anagement of surplus cash. 'roblem of accounts recei ables management. 'roblem of wor(ing capital management.

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!-.ECTIVE !) T,E STUDY ,o study the o erall cash management in Strides Arcolab Limited. ,o classify arious expenses and comparison ,o prepare cash budget for a year <9anuary 3>>K to Cecember 3>>K= ,o manage surplus cash and arious way for in estment

,hese ob+ects are ta(en to study mainly because a proper cash management will gi e solutions to other problems li(e wage payment, debtor collection etc.

!b"ecti#e / ,o study the o erall cash management in Strides Arcolab Limited. ,his ob+ecti e can be achie ed by obser ing the arious boo(s of accounts, Cebtors collection method, and cash cycle.

!b"ecti#e 0 ,o classify arious expenses, this ob+ecti e can be achie ed by grouping the arious expenses shown in cost sheet

!b"ecti#e 1 ,o prepare the cash budget for a year. ,his ob+ecti e can be achie ed by analy%ing the past records of sales and cost boo(.

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!b"ecti#e 2 ,o manage in estment of surplus fund, this ob+ecti e can be achie ed by analy%ing the cash budgeting and using the &iller#0rr model.

METHODOLOGY ,he methodology used in the present study entitled -Ffficiency of cash management/ is shown in this chapter. ,he present report is prepared with the help of both primary and secondary data.

-E&E)ITS !) T,E STUDY ,his study will help the organi%ation in the following wayE ,o analy%e the current cash management. ,o predict the future receipts and payments. ,o impro e the debtors collection period. ,o in est the surplus funds.

SC!PE !) T,E STUDY ,he study includes the budgeting of the arious incomes and expenditure for the future period and also, to study whether the in estment of surplus of funds is done in an efficient manner. ,he present report is prepared with the help of both primary and secondary data.

$IMITATI!&S !) T,E STUDY ,his study has some limitations, such asE

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,he study is limited only to the o er all cash management of Strides Arcolab Limited. ,ime factor. ,he budgeting is depending on ariable techni*ue. In estment proposals carry the limitation of &iller#0rr &odel.

II3 REVIE4 !) $ITERATURE

SPEEDI&( UP CAS, RECEIPTS


9ams and +ohn say that the arious collections and disbursement methods of firm employees to impro e its cash management efficiently contribute two side of the same coin. ,hey exercise a +oint impact on the o er all efficiency of the cash management. ,he general idea is that the firm will benefit by -speeding up/ cash receipts and -slowing down/ cash payments. ,he firm wants to speed up the collection of accounts recei ables so that it can ha e use money sooner. It wants to pay account payable as late as is consistent with maintaining the firms credit standing with supplies so that it can ma(e the most use of the money it already has.

PERS!&A$I5E T,E C!$$ECTI!& PR!CESS &c Stephen said that many employees, managers, and business owners are especially fearful of ma(ing telephone calls to collect past Cue funds. ;owe er, I will strongly suggest that you can usually collect your funds *uic(er this way than with numerous letters and in oices that are stamped -'AS, C$F/. 4e er get angry, ma(e a friend within your customers Accounts 'ayable department, and use guilt to your ad antage# they already (now they are late and that you are owned the money. If your client is financially unable to pay the full amount, then try to recei e a partial payment along with a schedule for when you will recei e subse*uent payments. <www.cfsa.com=

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D!&6T D! A&Y M!RE -USI&ESS 4IT, S!ME!&E T,AT D!ES &!T PAY Carwin Fdward said that -Cont do any more business with someone that doesnt pay/ ,his sounds so ob ious, but far too fre*uently a business that desperately wants to (eep a -good/ client will continue to ship additional products on the promise of a payment, which ne er materiali%es. Set limits on how many products you are willing to ship, and do not ship more products than this limit allows until payment is recei ed. <www.cashmanagement.com=

CAS, MA&A(EME&T SERVICES A&D I&)!RMATI!& TEC,&!$!(Y


In the inaugural address gi en by 7amosam on the abo e topic re eals that the fundamental ob+ecti e of cash management is optimi%ation of li*uidity through an impro ed flow of funds. It is suggested in the address that a good cash management is a conscious process of (nowing when, where and how a companys cash needs will occur, (nowing what the best sources for meeting additional cash needs and being prepared to meet those needs when they occur by (eeping good relation ship with ban(ers and other creditors.

D!&6T TA7E A& !RDER Y!U CA&&!T MA7E A PR!)IT !& 'hilip 2oc( well said that it is hard principle to adhere to when you are trying to close a new account. 0nce you ha e established a -low/ price, it is ery difficult to raise prices later on. Also, customers -brag/ about the deal they got from you, and now e erybody expects the same the same deal. It is extremely difficult sustain a business with low margins. <www.cfsa.com=

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!))ER V!$UME DISC!U&TS .UDICI!US$Y 5illiam .harles iewed that if you plan to offer olume discounts, base them only on orders actually recei ed, not on the -promise/ of future olumes. Some companies will re*uest a price asserting they will be buying *uantities of your product o er a long period. After the olume discount price is established, only a few items at this low price will be purchased. Fstablish a discount schedule that defines a specific discount for a specific *uantity purchased. Apply larger discounts when, and only when, larger *uantities are purchased <www.icon.com=

-USI&ESS CAS, MA&A(EME&T


1inancial managers employ a ariety of cash managements techni*ues to minimi%e loans from out side sources and to ensure that there is sufficient cash on hand to meet its obligations. ,his is called efficient business cash management. :ood cash management impro es a companys profitability by shortening the collection time line, reducing operational costs and slowing disbursements of cash according to this, business management is concerned with maximi%ing cash flow, maintaining cash reser e, managing business lines of credit and impro ing operational efficiency.

D!&6T 4AIT U&TI$ T,E E&D !) A M!&T, 'rof. 5.F. Sa*uiddin reported that -Cont wait until, the end of the month or a fixed date to send in oices#send them immediately/. If you ship a product at the beginning of a month an of wait until the end of the month to send an in oice with thirty <">= day terms, then the payment cycle is sixty <I>= days. If the in oice is sent immediately, then the cycle is thirty <">= days. A long payment cycle can cripple the company cash wise. Always include a Cue Cate on e ery in oice. <www.icon.com=

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IMP!RTA&CE !) CAS, MA&A(EME&T


According to study there are many techni*ues a ailable for helping a business to impro e the cash flow. Some of these techni*ues are sell for cash or credit cards rather than on terms, if you do cell on terms establish good credit polices ,bill promptly, add late charges and fees when possible ,tighten customer credit re*uirements pay bills only on due date or later it possible. 2educe the in entory to the most necessary items, dump slow mo ing items at cost, lease instead of purchasing e*uipment. &a(e ban( deposits promptly, consider prudent borrowing, increase sales and increase prices.

TA7E ADVA&TA(E !) !PP!RTU&ITIES 9ames 5al(er said that cash budgeting help in (nowing the exact state of your personal monetary affairs, and being in control of them, allows you ta(e ad antage of opportunities that you might otherwise miss. ;a e you e er wondered if you could afford somethingM 5ith a budget, you will ne er ha e to wonder again#you will (now. <www.indiatimes.com=.

$!C7 -!X SERVICES


,he flag ship ban( is of the opinion that businesses can measurable speed con ersion con ersions of their recei able into usable cash by relaying on the loc( box ser ices pro ided by them. ,here payments processing specialists will recei e e ery day payments erify the match of in oice amount and payment recei e, and deposit all che*ue .they forward all the supporting details to the business firm by direct transmission. ,he benefits of the system are *uic( deposition of all remittance to speed up the a ailable funds, complete deposits informations to manage cash position and ma(e the staff directed to other functions.

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!))ER DISC!U&T )!R EAR$Y PAYME&T 4:I &I.;FL 6ILI0' reported that there are pluses and minuses with this tactic. It is assumed that with this tactic, cash flow would generally be more rapid, but this is not always true. If you offer an early payment discount to a client who always pays in oices on time, then you ha e unnecessarily gi en away part of your profit. &any large companies ha e a standing policy whereby they ta(e e ery discount a ailable because they understand the alue that is being offered. 0ther companies will ta(e the discount e en though they ha e not collect the discount can be more costly than the actual alue of the discount. 0ffering an early payment discount to a -slow/ payer may be +ust the incenti e that is needed to collect payments of time. Analy%e your clients payment history and selecti ely apply this strategy for maximum benefit. <www.sol ency.com=

MA&A(I&( 8!VERDUE ACC!U&TS &ichelle l ;ewlett said that charging interest on o er due accounts may help to recei e payments on time as companies do not li(e to be penali%ed or pay more for a product or ser ice than is necessary. ,his element of the payment terms should also be discussed early in the sales cycle. Although charging interest on a past due account is a standard practice in most industries, as with early payment discounts it can be costly to collect if the customer does not pay the interest. ;owe er, assessing the late fees on a original in oice <oftentimes less the interest= which is far more important than collecting late fees. <www.timesofindia.com=

IMP!RTA&CE !) CAS,
2obins, while emphasi%ing the importance of cash in business, suggested that cash as a strong commodity. A business wants to get hold of it in the shortest possible time but to (eep least

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possible *uantity on hand. Increased sophistication in the handling of cash as enabled companies to cut down on the balances needed to sustain any gi en le el of operations. <www.acfm.com=

C!&TR!$ &ar( 9. 2andall iewed that a budget is the (ey to enabling you ta(es charge of your finances. 5ith a budget, you ha e the tools to decide exactly what is going to happen to your hard#earned money#and when. Nou can be in control of your money, instead of ha ing your money limit what you do. ,his bears repeatingE you can be in control of your money, instead of letting it control youO

<www.acfm.com= Y!UR -USI&ESS C,A$$E&(E


AB4 A&20 opinions that todays treasurers need rapid and reliable informations, so that ris( and disclosure can be accurately monitor for impro ed decision ma(ing. Ffficient cash management processes are needed to execute payment, collect recei ables and manage li*uidity. A strong cash management is essential to execute a companys financial strategy in the world of intense competition e er#changing e#business opportunities and economic olatility.

<www. i isimo.com= MA&A(I&( Y!UR ACC!U&TS RECEIVA-$E In the words of 9im 0Connell, managing cash is one of the most critical elements to ha ing a profitable business. 5ithout proper understanding of the -cash .ycle/, many businesses find themsel es cash constrained, thus limiting management ability to conduct day#to#day operations as well as ma(e long#term in estments to ensure the iability of the business. <'raxis 9an#3>>A=

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E)T 9E ectronic )und' Tran'fer'+


,he flag ship company is of the opinion that business customer originate and recei e F1, <Flectronic 1unds ,ransfers= and can ta(e ad antage of todays economical F1, capabilities. ,here F1, transactions through the automated clearing housing <A.;=, are routine for companies, which need to mo e cash nation wide for next day a ailability. ,hey assure that the funds mo e where and when needed with speed and accuracy.

CAS, -UD(ETI&( $EADS T! -ETTER CAS, MA&A(EME&T According to ,.C.S 7abali, the cash budget is an important tool for efficiency managing cash. All facets of a hospitals operation are examined so that cash receipt and disbursements for an upcoming fiscal period may be forecast according to common financial acti ities. .ash budget that follow the format suggested by 1inancial Accounting standards Board Statement are useful for preparing a cash flow statement at a periods end by listing receipts and expenditures according to operating, in esting, and financing acti ities. An increase or decrease in the cash position is shown in the budget. If unacceptable, this ariance triggers action to secure additional cash inflow <by speeding up recei ables collection, selling in estments, factoring recei ables, borrowing, and soon= or to reduce cash outflow <by reducing costs, foregoing in estments, delaying debt payoffs, and so on= <Fconomic ,imes= CAS, )!RECASTI&(:A R!UTI&E )U&CTI!& A2 5illiams suggested that cash forecast should be prepared systematically as apart of the routine budgeting process. Because ha ing ade*uate cash on hand at the proper time is important, monthly budgets best monitor the situation. ,he !3 monthly budgets may be combined to pro ide *uarterly and annual forecasts. ,he monthly reports also may be bro(en into wee(ly forecasts if such detail is desired. At the end of a budget period, the results for that inter al may be compared with forecasts to detect significant differences.

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!-.ECTIVE / CAS, MA&A(EME&T I& STRIDES ACR! $A- $TD A proper cash management system will help the organi%ation in smooth running of its acti ities. As cash is lifeblood to e ery organi%ation, it must be managed properly so that any cash problem does not arise in the future. !b"ecti#e' of ca'h mana%ement in Stride' Arco ab $td3 ,o study the efficiency of cash management in the organi%ation. ,o identify the operating cycle of the firm. ,o meet the payment schedules of cash.

.ash management is one of the (ey areas of wor(ing capital management. .ash is the common domination to which all current assets can be reduced because the other current assets, recei ables and in entory are e entually con erted into cash. ,he stride has centrali%ed management. ,he whole company has managed by the top management. .entrali%ation refers to the extent or degree to which power and authority are retained at the top management le els and decision ma(ing is concentrated at a single point in the organi%ation. Ad#anta%e' of centra i;ation Fasier coordination of acti ities of arious departments or units and close control of acti ities ,op mangers ha e better experience in ma(ing decisions ,op mangers ha e broader perspecti es 2educed duplication of effort and resources

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'romoters strong relationship 'roduces uniformity of policy and action

Cecentrali%ation refers to the extent or degree to which power and authority are delegated to the lower le els of management. Di'ad#anta%e' of Decentra i;ation ,he decentrali%ation has some disad antages. ,hey are &a+or and significant decisions are not possible ,here is no uniformity of policy and action Lac( of ability and experience for lower le el mangers to ma(e decisions Cifficult to coordination of acti ities of arious departments or units .lose control of acti ities is a difficult tas( duplication of effort and resources If the company is going for the decentrali%ation it will face many problems. ,he centrali%ation helps to the company to sur i al in the global mar(et.

Ca'h cyc e in Stride' Arco ab $td3

3A

It is the process by which cash is used to purchase materials from which are produced goods, which are then sold to customers, who later pay the bills. ,he firm recei es cash from customers and the cycle repeats itself. ,he cash management cycle is

.ash collection Business operations Ceficit Borrow

Surplus Information and .ontrol .ash payments

In est

In the first step the company has to order the materials. After that it recei es the materials from suppliers and the company has to do some payments to its suppliers. After the process the company will sell their finished products to its customers. ,he ban( has to collects the che*ue on behalf of the company and deposits in the company account. So fund is collected in the company account, this cycle is repeated itself. Some times the company has to do the payments after collecting the debts or cash. ,he company is in esting the surplus cash in different securities and also rein est in the business. It helps to the company to reduce the borrowings. If there is any deficiency the company goes for the borrowings. It increases the cost. So company is concentrating to reduce the borrowings. It helps to reduce the o erall cost of the company.

3)

Strides Arcolab Limited being large scale sector it has !Kyears of experience in the pharmaceutical industry. It is now facing the problem in managing its cash and cash related items. ,he ma+or problems identified in the cash management areas areE Cebt collection period 'roper payment schedule. 5or(ing capital management.

,hese problems mainly arise due to more competition. ,he firm is trying to apply better management techni*ues for the better management of acti ities of business. ,he problem in accounts recei ables and the debtors collection is mainly due to the exports to the foreign mar(et. As they ha e more experience in the mar(et, they ha e not adopted any debt collection policy. Cebtors are allowed to gi e the money within !KDdays of sale of products. ,his system has affected the cash turno er and cash cycle of the organi%ation. As they are purchasing raw materials from different places and the payment will be made after !3@ days of purchase. ,his system of payment has increase the wor(ing capital re*uirement of the organi%ation. Strides Arcolab Limited has better wor(ing capital system. ,he company is in a growing stage. So they are using more and more wor(ing capital. ,his has made them to go for the borrowing. It has effected in increase the interest and ris(. ,he company collects che*ues from its customers through ban(. ,he customers deposit the che*ue to the particular ban( in their country. ,he ban( will collect the receipts and transfers it to the respected ban(. ,he respected ban( is collecting the receipts and deposits it in the company account and it also do the payments to the suppliers within the specified time. 1or this transaction ban( recei es commission from the company. It is ad antage to the company, because It reduces the credit ris( It reduces the uncertainty It offers safety to the company

3I

,he company ha e good financial source. ,he company has good reputation in the global mar(et and en+oying good financial bac(ground. ,he sources of finance are 2 8 C income Sales re enue 0ther income Ban( borrowings It includes both long term and short term borrowings.

(!A$S !) CAS, MA&A(EME&T ,he primary goal of cash management of the company is the trade off between li*uidity and profitability in order to maximi%e long term profit. ,his is possible on the only when the firm aims at optimi%ing the use of firms on the wor(ing capital pool. ,his o er all ob+ecti es can be translated into operational goals. ,he goals of cash management in strides Arcolab are as follows ,o satisfy day# to# day business re*uirement ,o pro ide for scheduled ma+or payments ,o face unexpected cash drains ,o sei%e potential opportunities for profitable long term in estment ,o meet re*uirements of ban( relationships ,o earn cash balances ,o minimi%e the operating cost of cash management ,o build reser oir for net cash in flows till the a ailability of better uses of funds by conscious planning.

3K

!-.ECTIVE 0 C$ASSI)ICATI!& !) VARI!US EXPE&SES 5ithout spending any money, no organi%ation can able to generate any re enue. Income and expenditure of any organi%ation will depend on the type and the si%e of the organi%ation. 'roper control o er all the expenses will help the organi%ation to manage its cash in a proper manner. ,o ha e planned and controlled expenditure, the organi%ation must classify its expenditure based on ariability, around of expenditure, type of expenditure etc. A schedule of future expenditure will help e ery organi%ation to spend on the re*uirements, within the limit of budgeted figure. ,he study has found the arious expenses those are spent by Strides Arcolab Limited. ,he

company has to classify its expenses or costs in two types. ,hey are 'ersonal cost 0perating costs and other expenses

,he 'ersonal cost includes the salaries, wages and allowances, contribution to pro ident and other funds, staff welfare expenses, raw material etc. ,he operating expenses includes other manufacturing expenses li(e power, fuel, water, con ersion charges, insurance etc, administrati e expenses li(e communication charges, rent, excise duty paid etc and selling and distribution expenses li(e ad ertisement, commission on sale, tra eling expenses etc.

3@

,his study has found out se eral types of expenses. ,hen expenses are grouped under six main headings. ,hey areE &aterials &anufacturing expenses Administrati e expenses Selling and distribution expenses ,ransport charges 1inancial charges

Materia ' &aterial co ers those materials, which co ers the ma+or part of the product cost. ,he material includes both direct and indirect materials. ,he company uses different type of raw materials and pac(ing materials. ,hese materials are ery important to the production and directly related with the final product. ,hese materials contribute ")B of total cost incurred to manufacture the different types of medicines. In the year 3>>) the material expenses are 2s 3>DA.3I million compare to year 3>>A it is 2s !IDA.") million.

Manufacturin% E<pen'e' ,he manufacturing expenses arious expenses which are directly related to the production of goods and ser ices. ,hese expenses are ery necessary to produce the finished products. ,he manufacturing expenses includes different expenses li(e 'ower, fuel and water

3D

.on ersion and processing charges Insurance .onsumables 2epairs and maintenances

,hese are the arious manufacturing expenses which are directly and indirectly related with the final product. In the year 3>>) the material expenses are 2s AA).IA million compare to year 3>>A it is 2s ")3.)! million.

Admini'trati#e E<pen'e' ,he administrati e expenses include arious expenses which are indirectly related to the

production of goods and ser ices. It is the indirect expenditure incurred in formulating the policy, planning and directing the organi%ation, controlling and managing the operations of an underta(ing that is not related directly to a research, de elopment, production or selling acti ity. ,he administrati e expenses incurred by Strides Arcolab Limited areE Salaries and allowances Staff welfare expenses .ommunication charges 2ent and taxes 1reight and forwarding Fxcise duty paid .ontribution to pro ident and other funds

">

,hese o er heads of the company contributes 3>B to the total cost. In the year 3>>) the material expenses are 2s !"!I.K" million compare to year 3>>A it is 2s D3D.") million. Se in% and Ad#erti'ement It is the cost of see(ing to create and stimulate demand#securing order and comprises the cost of soliciting and processing orders for the commodities deal in the effort to retain final customer. ,he selling and ad ertisement costs of Strides Arcolab Limited include .ommission on sales Ad ertisement and business de elopment expenses ,ra eling and con eyance

,hose expenses contribute !>B to the total cost. In the year 3>>) the material expenses are 2s 3"A.)D million compare to year 3>>A it is 2s !IA.@) million.

Tran'portation Char%e' ,his is the charge in ol ed in transportation of products to foreign countries. ,he Strides Arcolab Limited is an export oriented united. It transports the products through aero planes. ,he plane charges contribute !> B to the total cost.

)inancia char%e' ,he financial charges are the indirect expenditure incurred in the time of run the business. ,hese expenses are not directly related to the production. ,hese expenses include some charges. ,he financial charges incurred by Strides Arcolab Limited areE Ban( charges and commission Interest on wor(ing capital and other facility

"!

Interest on fixed loans and foreign currency con ertible bonds

,he company holds the cash in the business it is loss for the company. It is dead cash. It incurred the interest rate cost. In the year 3>>) the material expenses are 2s "AD.!A million compare to year 3>>A it is 2s 3)).I!million. !-.ECTIVE 1 CAS, -UD(ET ,he main ob+ecti e of the cash budget is to achie e management ob+ecti es. It pro ides a detail plan of action for reducing uncertainty and for the direction of indi idual and department. It is the short#term cash forecasting and the principle tool of cash management. ,he firm prepares a cash flow statement e ery month, which also contains the forecast of cash flow for future period. ,he cash flow statement contains sales reali%ation, operational payment, non#operational receipts and payments and finally surplusJdeficit for the month. It also helps to plan and control income and expenses as to attain maximum profitability. .ash budget is the most significant de ice to plan for and control cash receipt and payments. A cash budget is a summary statement of the firms expected cash in flow and cash outflow o er a pro+ected period. It gi es information on the timing and magnitude period.

Ca cu ation of minimum ca'h -a ance re=uired

A erage debtors collection period P !KD days A erage In entory ;olding period P !3@ days .redit payment period P !"Ddays Annual expenditure P 2s A)!>."A million

"3

.ash cycle P !KD days Q !3@ days !"D days P !I@ days .ash turn o er P "I> daysJ !I@days P 3.!Ktimes &inimum cash re*uired P <A)!>."A J 3.!K=J !3 P 2s!K".3! million

Preparation of ca'h bud%et


,he principal aim of cash budget, as a tool to predict cash flow o er a gi en period of times there is li(ely to be an excess of shortage of cash. 'reparation of cash budget in ol es arious steps. ,hese may be described as the element of cash budget system. ,he first element of cash budget is the selection of period of time to be co ered by the budget. Alternati ely, it is referred to as the planning hori%on. ,he planning hori%on means the time span o er which the cash flows are to be pro+ected. ,here is notified rule. ,he co erage of cash budget will differ from firm to firm depending up on its nature and the degrees of accuracy with witch estates can be made. As a generated rules the permitted selected should be too long or too short. If it is too largest is li(ely that the estimated will be inaccurate, if on the other hand the time span is too small, many important e ents which that is +ust behind the period cannot be accounted for and the wor( associated with the preparation of the budget becomes excessi e. ,he planning hori%on of the cash budget should be determined in the light of the circumstance and re*uirement of a particular case. 1or instance, if the flows are expected to be stable and dependable, such a firm may prepare a cash budget co ering long period, say a year and di ide it in to *uarterly inter als. In the case of firm whose case are uncertain a *uarterly budget, di ided in to monthly budget, sub di ided on a wee(ly of e en a daily basis may be necessary. ,he idea behind sub di iding the budgeting period in to smaller inter als is to highlight. ,he mo ement of

""

cash from period to another the sub di ision will pro ide information on the fluactions in the cash reser oir le el during the time span co ered by the budget. ,he second element of cash budget is the selections of the factors that ha e begun are only cash items. 4on cash items such as depreciation are excluded. ,he factors that generate cash flow are generally di idend for purpose of the construction of cash budget in to two broad categories. ,hey are 0perating budget 1inancial budget

,hese two classification of cash budget items based of their nature. 5hile the farmer categories includes cash flow generated by operations of the firms and are (now as operating cash flow, the later consists of financial cash flows. In this report a ariable budget for a year has been preparedL while preparing the budget a debt collection period is suggested. ,he suggested debt collection period is after ! month and 3 months. ,he table shows the cash budget for a year.

APP$ICATI!& !) MI$$ER:!RR M!DE$ 1or cash budgeting, ariable budgeting techni*ues is used. It ta(es total receipts and disbursement into consideration. 1or in estment proposals, &iller#0rr model is used. Mi er:!rr Mode ,he &iller#0rr model is infect, an attempt to ma(e the Baumol &odel more realistic as regards the pattern of cash flow. As against the assumption of uniform and certain le el of cash balance in the Baumol &odel, the &iller#0rr &odel assumes that cash balance randomly fluctuate between an upper limit and lower limit. 5hen the cash balance hit the upper limit, the firm has too much cash and should go for in est in other company or ban(s to bring the cash balance bac( to the optimal bound. 5hen the cash balance hit %ero, the financial manager must return them to the optimum bound by recollecting the in ested funds in ban(s or other financial institutions.

"A

According to &iller#0rr &odel, the optimum cash balance can be expressed symbolically asE 2'P " "br 3 J A I + LL 2'P return point LL P Lower control limit b P 1ixed cost per order for con erting mar(et securities into cash. r3 P 6ariance of daily changes in the expected cash balance. I P Caily interest rate earned on mar(etable securities. $L P $pper control limit.

,he annual yield a ailable on mar(etable securities is !3B, and the fixed cost is 2s.!!>.

,he three limits calculated as per &iller#0rr model isL LL P A!).@3 2' P ))D"."I $' P !3I3!.@) ,he &iller#0rr model pro ides for two control limits the $pper control limit and lower control limit as well as return point. $pper control limit if the firms cash flows fluctuate randomly and hit the upper limit, then it buys sufficient mar(etable securities to come bac( to a normal le el of cash balance.

Lower control limit when the firms cash flows wander and hit the lower limit, it sells sufficient mar(etable securities to bring the cash balance bac( to the normal le al.

4oteE
5hile preparing the budget following assumptions are ta(enE ,he expenses are ta(en as the percentage of sales. ,he firm will repay the borrowed fund when there is excess cash

")

Tab e 23/ The Ca'h -ud%et for a year


9R'3 in Mi ion+ Particu ar' Tota 'a e' .ash sales <">B= Co ection@ ! month <)>B= 3 month <)>B= 0ther income .anuary:>? "@I.DI !!I.>@ )ebruary:>? "@D.DI !!I.D@ March :>? "D".@I !!@.!) Apri :>? "DK.@> !!D."A May :>? A>!.DK !3>.)" .une :>? A>).@> !3!.KA

!").A" !").>>

!").AA !").A"

!"I.AD !").AA

!"K.@I !"I.AD

!"D.3" !"K.@I

!A>.I3 !"D.3"

)K.D3

)@.)>

)D.>>

)D.IK

I>.3I

I!.>>

Tota Co ection@ E<pen'e'@ Materia con'umed .ash payment <3>B= ! month <A>B= 3 month <A>B= 'ersonal cost 0perating cost 1inancial charges

2223AA

22A32B

2C03AB

2C?32?

2B03>1

2BB3A>

!KA.>3

!KA.D)

!K)."@

!K).@3

!KI.3I

!KI.K!

ID.IA ID.A@ I@.3) !>).)3 3K.)I

ID.@! ID.IA I@.A3 !>).KD 3K.I"

ID.D@ ID.@! I@.)D !>I.>I 3K.K>

K>.!) ID.D@ I@.KI !>I."3 3K.KK

K>."" K>.!) I@.D" !>I.)D 3K.@A

K>.)> K>."" ID.!! !>I.@) 3K.D!

"I

Tota e<pen'e' (ro'' ca'h ba ance

1?C31C

1?B3?D

1??3?0

1?A3B?

1?D3B0

1A>3CA

BD3C1

?/3B?

?C3/2

?A3A

A032/

AB300

0pening cash balance

K@.K>

!K".3"

3!D.K"

33A.@K

">".IK

"@I.>@

Ban( Borrowing

3).>>

4IL

4IL

4IL

4IL

4IL

Interest 2epayment of loan

4IL 4IL

>.!IIK 3).>>

4IL 4IL

4IL 4IL

4IL 4IL

4IL 4IL

Amount a ailable to in estment C o'in% -a ance

4IL

4IL

K>.>>

4IL

4IL

D>.>>

/?1301

0/D3?1

0023A?

1>13B?

1AB3>A

1A031>

"K

Tab e 23/ The Ca'h -ud%et for a year


9R'3 in Mi ion+ Particu ar' Tota 'a e' .ash sales <">B= Co ection@ ! month <)>B= 3 month <)>B= 0ther income .u y :>? A>D.@) !33.D) Au%u't :>? September: >? A!A A!@.!A !3).AA !ctober:>? A33."3 !3I.DK &o#ember: December:>? >? A3I.)> A"! !3K.D) !3D."

!3A.3>

!A3.>" !A>.I3

!A".A) !A3.>"

!AA.D> !A".A)

!AI."> !AA.D>

!AK.@! !AI.">

!AD.3@ !AK.@!

I!.A@

I3.>D

I3.K3

I"."A

IA.>>

IA.I3

Tota Co ection@ E<pen'e'@ Materia con'umed .ash payment <3>B= ! month <A>B= 3 month <A>B= 'ersonal cost 0perating cost 1inancial charges

2?/311

2?B3>D

2A>3AB

2AC3BB

2D>3C>

2DC3B0

!KK.!A ").A" K>.I@ K>.)> ID.3@ !>K.!3 3K.D@

!KK.)@ ").)3 K>.@I K>.I@ ID.A) !>K."D 3@.>A

!K@.>" ").I! K!.>" K>.@I ID.I" !>K.II 3@.!3

!K@.AK ").ID K!.3! K!.>" ID.@> !>K.D3 3@.!D

!K@.D3 ").K@ K!."D K!.3! ID.DK !>@.!D 3@.3I

!KD."K ").@K K!.)K K!."D K>.!) !>@.AI 3@.""

"@

Tota e<pen'e' (ro'' ca'h ba ance 0pening cash balance Ban( Borrowing Interest

1A/3C0

1A032B

1A1322

1A231A

1A23C2

1AB31/

AD3A/

D13B1

D?320

/>/30A

/>C3DB

/>D31/

"@3.">

AK3.!!

)I).KA

))".!A

I)A.AA

I">.A

4IL

4IL

4IL

4IL

4IL

4IL

4IL

4IL

4IL

4IL

4IL

4IL

2epayment of loan In estment in security C o'in% -a ance

4IL

4IL

4IL

4IL

4IL

4IL

4IL

4IL

!!>

4IL

!">

4IL

2?03//

CBC3?2

CC13/2

BC2322

B1>32

?1D3?/

A''umption'

"D

Income increased e ery month by ! B ,otal assets deri ed in four heads, i.e. material consumed, personal cost, operating cost and financial charges. ,hese expenses are increased by >.3)B in e ery month &inimum cash balance is calculated as 2s !K".3!million Borrowings are made multiples of ) Interest on borrowings are @B per annum 5e assumed that ">B sales are cash sales and remaining are recei ing in two e*ui alent months 5e assumed that 3>B payments are cash payments and remaining @>B are paid in two e*ui alent months

C!$$ECTI!&S A&D EXPE&SES ,he table shows how the total collection aries from month to month and the total expenses that the firm may ha e to spend in future. ,he expenses are directly related to the dealers of the organi%ation. ,he collections are increasing e ery month. It is mainly due to adaptation of new debt collection policy. At the same time expenses are also increasing e ery month. But this table shows that in e ery month the company is increasing percentage of sales and other re enues compared to percentage of expenses. ,he table shows patterns of collections and expenses.

A>

Tab e 'hoE' the Co ection and E<pen'e' of Stride' Arco ab $td 9R'3 in Mi ion+ Month 9anuary 3>>K 1ebruary#3>>K &arch#3>>K April #3>>K &ay #3>>K 9une #3>>K 9uly #3>>K August #3>>K 600 Co ection
AAA.@@ AA@.AI A)3.@I A)K.AK AI3.>" AII.@> AK!."" AKI.>D A@>.@I A@).II AD>.)> AD).I3

E<pen'e'
"K).") "KI.KD "KK.K3 "K@.IK "KD.I3 "@>.)@ "@!.)3 "@3.AI "@".AA "@A."@ "@A.)A "@I."!

September#3>>K

0ctober#3>>K 4o ember#3>>K 500

Collection and Expenses

Cecember#3>>K

400

230 -!RR!4I&(S A&D PAYME&T ,he firm 300 will need to borrow some loans from ban( or from any financial institution. ,he firm is expected to borrow 2s.3) million in the month of 9anuary 3>>K. ,hese funds can be repaid in next month. ,he new debt collection method will help the firm to repay the loan in short period.

200

100

0
Ja nFe 07 bM 07 ar -0 Ap 7 rM 07 ay -0 Ju 7 n0 Ju 7 l-0 Au 7 gSe 07 p0 O 7 ct -0 No 7 vDe 07 c07

Months

ollect!on "#pen$e$

A!

(R!SS CAS, -A$A&CE

A3

,he table shows the anticipated gross cash balance in the next one year. In the initial month, the gross cash balance will be ery less. ;owe er, as the new system start to wor( the cash balance will go up to high position. ,he table shows that the gross cash balance is increasing in e ery month. ,able shows the gross cash balance of Strides Arcolab Ltd.

Tab e 'hoE' the (ro'' Ca'h -a ance of Stride' Arco ab $td3 Month 9anuary 3>>K 1ebruary#3>>K &arch#3>>K April #3>>K &ay #3>>K 9une #3>>K 9uly #3>>K (ro'' Ca'h ba ance 9R'3 in mi ion+
ID.)" K!.IK K).!A K@.@> @3.A! @I.33 @D.@! D".I" DK.A3 !>!.3@ !>).DI !>D."!

%ro$$& a$'&balance&()$*&!n&+!ll!on,&

120 100 -0 60 40 20 0
07 ar -0 7 07 ay -

August #3>>K

Gross Cash Balance

September#3>>K 0ctober#3>>K 4o ember#3>>K Cecember#3>>K

Ju l- 0 7 Se p07 N ov -0 7

Ja n-

Months

%ro$$& a$'&balance&()$* !n&+!ll!on,&

A"

!-.ECTIVE 2

AA

T! MA&A(E T,E I&VESTME&T !) SURP$US CAS, ,he ,able shows the way in which the firm can expect to ha e the surplus cash balance in the future months. In the 9anuary#>K, the company cannot expect any excess fund to in est in the mar(etable securitiesL they ha e borrowed funds from the ban(. In the next month they are repaying their loans, after that in &arch the company can ha e fund to in est. ,hese opportunities will continue in the subse*uent months as shown in the table. ,he table shows the in estment of Securities. 1rom the table, it is clear that in the beginning months as the firm has less opportunity to in est, as they ha e maintained the minimum cash balance. 1rom &arch#>K, they ha e surplus cash balanceL some part can be in ested in mar(etable securities. As cash balance reaches the upper limit the firm is ad ised to in est it in mar(etable securities, so that they can bring the cash balance to optimum le el. ,he strides Arcolab Ltd is in a growing stage. It uses its most part of the cash are rein ested in its business. ,he company is using surplus cash as a wor(ing capital and other acti ities of the business. So the company is in esting its some part of surplus cash in different securities. ,he company is in esting the surplus cash in e ery two months. Its in estment is increasing e ery month in the same amount. ,o fulfill the wor(ing capital needs and other acti ities the company is using its surplus cash. It helps the company to reduce the borrowings and reduces the cost. Moti#e' of ca'h mana%ement ,he term cash with reference to the cash management is used in two senses. In a narrow sense used broadly to co er currency and generally accepted e*ui alents of co er currency and generally accepted e*ui alence of cash such as che*ues, drafts and demand deposits in ban(s. ,he main characteristics of these that they can be readily fold end con erted into cash.

A)

,here are four primary moti es for maintaining cash balances. ,hey are ,ransaction moti e 'recautionary moti e Speculati e moti e .ompensation moti e

Tran'action moti#e An important reason for maintaining cash balances in the transaction moti e. ,his refers to meet re*uirements to finance the transaction which a firm carriers in the ordinary course of the business. A firm which enters into a ariety of transactions to accomplish its ob+ecti e to be paid in the form of cash. 1or F.g.E .ash payment is made for purchase, wages, operating expenses and financial charges, taxes, di idends etc. ,hose times the company uses its surplus cash to meet the cash re*uirements. Precautionary moti#e In addition to the non synchroni%ations of anticipated cash in flows and out flows in the ordinary course of business firm may ha e to pay cash for purchases, which cannot be predicted or anticipated. ,he unexpected cash needs a short notice may be the results off. 1loods, stri(es and failures of important customers Bill may be presented for settlement earlier than expected. $nexpected show down in collections of accounts recei able Shop increase in cost of raw material ,he cash balances held in the reser e for the random and unforeseen fluctuations in cash flows are called precautionary balances. ,o face these problems the company in esting its excess cash in different mar(etable securities. ,hose times the company uses its surplus cash or reser ed cash to run the business.

AI

Specu ati#e moti#e It refers to the desire of firm to ta(e ad antage of apprentices which present them sel es at unexpected mo ement and which are typically to outside the normal course of business. ,he speculati e else to ta(e ad antage of An opportunity to purchase raw materials at a reduced price $4 payment of immediate cash A chance to speculati e on interest rate mo ements decline Celayed purchase at fa orable prices Celayed purchase of raw materials on the anticipation of decline in prices.

So the company has to in esting its surplus cash in different mar(etable securities and in the unexpected mo ement it sells its mar(etable securities to meet the cash re*uirements. Compen'ation moti#e Net another to hold cash balances compensates bonds for pro iding certain ser ices and loans. Ban(s pro ide a ariety of ser ices to business firms such as clearance of che*ue supply, credit information etc. ,o confirm their ser ices indirectly in this, they re*uire to always (eeping a ban( sufficient to earn a return e*ual to the cost of the ser ices such balances are compensatory balances. ,here are two types of mar(etable securities li(e long term mar(etable securities and short term mar(etable securities. ,he long term securities are those which ha e a maturity period of more than fi e years. ,he short term securities are those which mature within a period of one year. ,he long term mar(etable securities are &oney mar(et mutual funds 4egotiable certificates of deposits

AK

:o ernment bonds

Shares ,he short term mar(etable securities are .ommercial paper Ban(ers acceptance Bill of exchange 'urchase agreements ,reasury bills Intercorporate deposits units

A@

Tab e 'hoE' the in#e'tment' of Stride' Arco ab $td3 Month 9anuary 3>>K 1ebruary#3>>K &arch#3>>K April #3>>K &ay #3>>K 9une #3>>K 9uly #3>>K August #3>>K September#3>>K 0ctober#3>>K 4o ember#3>>K Cecember#3>>K In#e'tment 9R'3 In mi ion+
R

R
K>.>>

R
R D>.>> R

R !!>.>> R
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SU((ESTI!&S A&D REC!MME&DATI!&S Fstablish organi%ation goals for each management that will support the o erall organi%ations goal and mission statements. Implement them, communicate them to appropriate members of the organi%ation and re ise these as needed. $se a -good/ cash trac(ing system that meets the organi%ations needs. .hoose the accounting softwareL the chosen software should easily meet the established cash management goals. .onsider using additional applications for cash trac(ing#for example, electronic wor(sheets with detail that supports the cash detail in the general ledger. Institute and execute a cash budgeting processE 2esearch and e aluate the organi%ations cash needs and a oid o er extensionL Be realistic in forecast needs 8 update as new information comesL 7eep the cash management goals front centerL .ompare actual to budgeted figures on a periodic basis <i.e. monthly=

,horoughly document all cash transactionsE $se se*uential numbering, $se a template and detailed, step by step procedures for each cash transaction type for accuracy, consistency and completeness of all information in the following cash areasE cash deposits, cash withdrawals, chec(s written, cash in estment, cash sales, cash paymentsL 1or the accounts recei able <AJ2= cycle offer cash discounts, collect timely, state and enforce collection process, institute charge#bac(s for insufficient funds <IS1= chec(s, reconcile large customer accounts fre*uentlyJwee(ly, charge interest 8 late fees for the late payments, and reconcile wee(ly sales to AJ2 and cashL 1or the accounts payable <AJ'= cycle ta(e all discounts offered, pay bills timely, reconcile large endor accounts fre*uentlyJwee(ly, reconcile AJ' monthly to cash outs, and implement proper procedures to pre ent and detect duplicate payment.

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Fnter all cash transactions accurately, completely, timely and consistentlyL identify, mandate, and document with detailed procedures what must be entered so e ery transaction is complete, alid, and accurate. 5here possible ha e software programmed for these entries and do not allow transaction to be processed until all is completely entered, use non#discretionary, pre enti e, automated, mandatory control acti ities such as se*uential numbering, computer assigned numbering for purchase orders, in oices, chec( numbers, +ournal entries etc. ,horoughly train and educate those with cash management responsibilities. 'repare, communicate and update fre*uently the policies and procedures manual for cash management. .onsider issuing the policies manuals on the organi%ational networ( or intranet so that they are more readily a ailable on a central computer for offices and indi idually a ailable <this sa es a lot paper and expenses of the company=. 7eep the manual, discretionary and oluntary controls in the cash management to a minimum#wor( with the programming and de elopment staff for changes to your current accounting systems or for an upcoming new one. Ce elop and institute ade*uate segregation of duties in cash management# use separate people for the following dutiesE Cepositing chec(s and other forms of cash, 0wnerJ managerial re iew and monitoring,

Implement a system of daily cash management use a template to trac( cash flows and determine needs In est all idle funds immediately in both short#term and long#term in estments whene er possible. Fstablish, document and communicate authori%ation le els for spending, in esting, etc., and ha e these appro ed by a high le el of management in the organi%ation. Implement a system of pre enti e and monitoring controls to limit abuse. 0nce the cash management policy is created, implemented, and communicated, the organi%ation can be able to prepare for any future uncertainties.

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SUMMARY A&D C!&C$USI!& SUMMARY ,his chapter, here the final summary about the company is gi en, the information about the trends in the future is gi en. ,his study was conducted to understand and analy%e cash management of Strides Arcolab Limited. ,he study was done for the period of I wee(. ,he study has co ered the analysis of current cash management, new cash budget for a year period, management of surplus funds in Strides Arcolab Ltd. ,he ob+ecti es of the study achie ed through personal inter iew with managing partners using the ariable cash, budgeting method the cash budget for a year was prepared. $sing &iller#0rr model the optimum cash and the in estment of excess cash is planned. ,he study gi es some important findings that the cash management system is not in a proper condition. ,he main reason for the problem is improper debt collection, wor(ing capital management.

C!&C$USI!& .ash is the businesss lifeblood. &anaged well, the company remains healthy and strong. &anaged poorly, company goes into cardiac arrest. If company has not considered cash management as an important issue, then company undermining its short#term stability and its long#term sur i al. ,he cash management system should be in such a way that, at any time the firm must able to meet its obligation to other parties without any difficulties. ,o meet its expenses the firm must (now the future probable expenses and incomes that they are able to generate. ,o (now the future expenses and incomes they can prepare cash budget. It will help the firm to plan for the arious in estment opportunities in future. ,his will help the firm to utili%e the excess cash and control o er the idle cash.

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