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Cash Management

Encyclopedia of Systems and Control

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Definition

A firm needs to keep cash, either in the form of cash on hand or as a bank deposit, to meet its daily transaction requirements. Daily inflows and outflows of cash are random. There is a finite target for the cash balance, which could be zero in some cases. The firm wants to select a policy that minimizes the expected total discounted cost for being far away from the target during some time horizon. This time horizon is usually infinity. The firm has an incentive to keep the cash level low, because each unit of positive cash leads to a holding cost since cash has alternative uses like dividends or investments in earning assets. The firm has an incentive to keep the cash level high, because penalty costs are generated as a result of delays in meeting demands for cash. The firm can increase its cash balance by raising new capital or by selling some earnings assets, and it can reduce its cash balance by paying dividends or investing in earning assets. This control of the cash...

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Authors and Affiliations

  1. University of Alberta, Edmonton, Canada

    Abel Cadenillas

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  1. Abel Cadenillas
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Correspondence to Abel Cadenillas .

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Editors and Affiliations

  1. Electrical and Computer Engineering, Boston University, Boston, Massachusetts, USA

    John Baillieul

  2. Automation and Control Solutions, Honeywell, Golden Valley, Minnesota, USA

    Tariq Samad

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Cadenillas, A. (2014). Cash Management. In: Baillieul, J., Samad, T. (eds) Encyclopedia of Systems and Control. Springer, London. https://doi.org/10.1007/978-1-4471-5102-9_45-1

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  • DOI: https://doi.org/10.1007/978-1-4471-5102-9_45-1

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  • Online ISBN: 978-1-4471-5102-9

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Chapter history

  1. Latest

    Cash Management
    Published:
    22 October 2020

    DOI: https://doi.org/10.1007/978-1-4471-5102-9_45-2

  2. Original

    Cash Management
    Published:
    08 July 2014

    DOI: https://doi.org/10.1007/978-1-4471-5102-9_45-1

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