This lesson examines the core principles of cash management, including the reasons for holding cash, the importance of liquidity, and the techniques for cash flow forecasting.

2.1 Objectives of Cash Management
Cash management aims to provide adequate cash to meet requirements, prevent idle funds, and invest surplus cash to maximise returns . It is a delicate balance between maintaining liquidity and minimising costs.

2.2 The Need for Cash (Keynesian Motives)
Lord Keynes identified three basic motives for holding cash :

• Transaction Need: Cash facilitates day-to-day expenses and debt payments.

• Speculative Need: Cash is held to take advantage of profitable opportunities that may arise.

• Precautionary Need: Cash is held as a safety buffer against unexpected events.

2.3 Cash Flow Forecasting Techniques
Forecasting cash flows is a critical tool for liquidity management. Students learn to build accurate forecasts using direct and indirect methods, apply advanced Excel functions, and perform sensitivity analysis . This includes understanding cash flow cycles, managing seasonal fluctuations, and building dynamic models .

2.4 Cash Forecasting Process
The process includes gathering data from business units, using clearing dates for reliability, and reconciling the forecast against actual results . Short-term forecasts focus on immediate liquidity, while medium and long-term forecasts support strategic planning .