Small and medium-sized enterprises
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Cash management has a significant impact on financial performance. Effective cash management procedures are essential for firms to improve their financial management and ensure their financial sustainability . In the retail sector, cash management has a positive but marginal impact on financial performance, indicating the need for effective cash management practices to enhance financial success . For SMEs in Indonesia, cash management practices, such as forecasting and cash mobilization, have a significant relationship with return on assets (ROA), indicating that better cash management can lead to better financial performance . In manufacturing companies listed on the Indonesia Stock Exchange, inventory control, total quality management (TQM), and average collection period have a significant positive effect on financial performance, highlighting the importance of cash to cash cycle management . Similarly, in industrial companies listed on the Amman Stock Exchange, average collection period and average age of inventory have a negative and significant impact on profitability, emphasizing the importance of working capital management . In listed firms on the Ho Chi Minh Stock Exchange, working capital management, measured by the cash conversion cycle, positively impacts financial performance, providing insights for managers on improving financial performance .
Related Questions
What is cash management system in banks?4 answersA cash management system in banks refers to the process of managing cash flow and funds within the bank. It involves finding a balance between the cash held by the bank and the cash allocated for other investments, while aiming to achieve a desired return. Cash management systems in banks often involve multiple accounts and different links between them, making it a complex task. These systems can include various components such as management terminals, electronic point of sale (EPOS) terminals, and intelligent cash holding units. The cash management system calculates the total number of banknotes or coins lacking in each cash settlement device and instructs the cashier device to dispense the required amount of banknotes or coins to reach the desired inventory level. Additionally, cash management systems can include features such as monitoring the volumes of cash stored in automated transaction devices and updating control states based on malfunction information. Some cash management systems also utilize cloud servers and verification centers to verify the serial numbers of banknotes.How does financial literacy impact business performance?5 answersFinancial literacy has a positive impact on business performance. It enables MSMEs to make better financial decisions and improves their financial management. MSMEs with higher financial literacy are more likely to have better performance and sustainability. Lack of financial knowledge and skills can hinder business performance and limit access to financing sources. Additionally, financial literacy plays a role in shaping the attitudes and behaviors of entrepreneurs, leading to improved business performance. It is important for MSMEs to enhance their financial literacy to remain competitive and ensure business success. Social support from universities and other organizations can also contribute to boosting financial literacy among entrepreneurs. Overall, financial literacy is crucial for MSMEs to effectively manage their finances and enhance their business performance.How does cash management in relation with micro businesses profitability?4 answersCash management plays a significant role in the profitability of micro businesses. Effective financial management practices, including the management of working capital and cash, have been found to have a substantial correlation with profitability. Shortening the cash conversion cycle can increase profitability, while longer periods for accounts receivable, inventory, and cash conversion have a significant negative impact on profitability. Implementing sound cash management practices is crucial for ensuring profitability and sustainability in small businesses. Cash management is particularly important because cash is the most important asset that a firm holds. Therefore, small businesses should establish strong financial management methods, pay attention to the dynamics of their working capital and cash management, and implement cash management procedures to eliminate difficulties and ensure profitability.How does cash management affect the financial performance?1 answersCash management has a significant impact on the financial performance of organizations. Effective cash management procedures are essential for firms to improve their financial management and ensure their financial sustainability. The study on the Philippine retail sector found that cash management, measured by the cash ratio, had a positive but marginal impact on the financial performance of retail enterprises. Another study on manufacturing companies in Indonesia showed that inventory control, total quality management (TQM), and the average collection period had a significant positive effect on financial performance. In the context of deposit money banks (DMBs) in Nigeria, cash to total asset had a significant negative effect on financial performance, while financing cash to total asset and bank age had a significant positive effect. Overall, effective cash management practices, such as optimizing inventory control, implementing TQM, and managing cash positions, can contribute to sound financial performance. FAQs
Answers from top 5 papers. Effective cash flow management strategy ensures liquidity, minimizes cash gaps, and optimizes financing, leading to stable financial condition, increased profits, and sustained operational cycle rhythm in an organization.
What is the effect of cash management on financial performance? ›
According to the free cash flow theory of cash management (Huseyin, 1991), the management has the responsibility of holding cash to gain control over it in making investment decisions which can affect a business entity. Therefore, this will improve the financial performance of the business entities.
Why and how cash management is important in financial management? ›
Good cash management ensures that there's always enough cash to keep the business moving forward without interruption. Improves Investment Opportunities: When a business manages its cash well, it often ends up with extra cash that isn't needed for immediate expenses.
What are the positive effects of cash management? ›
Advantages of positive cash flow
Efficient cash flow management allows a business to optimize its working capital. By minimizing the time between receiving revenue and paying expenses, a company can improve its operational efficiency and reduce the need for external financing.
How does cash flow affect financial performance? ›
In an organization free cash flow increases the tendency to hold a large share of a firm's assets in form of cash, which can be used in investment projects or payment of shareholders. Managers can decide to make profitable investments, which may end up increasing returns and the general profitability of the firm.
How do cash management help financial managers? ›
Managing cash is what entities do on a day-to-day basis to take care of the inflows and outflows of their money. Proper cash management can improve an entity's financial situation and liquidity problems. For individuals, maintaining cash balances while also earning a return on idle cash is usually a top concern.
What is the impact of cash management on business profitability? ›
The findings of this study revealed that there is insignificant but positive correlation between profitability in the business and implementation of cash management practices. So, Implementation of cash management practices helps the business owner to improve their profitability.
Why is cash management important in financial reporting? ›
Importance of Cash Management
Cash management plays a pivotal role in a company's financial health for several reasons: Liquidity: Maintaining adequate cash reserves ensures that a business can readily meet its day-to-day operational expenses, including payroll, bills, and unforeseen emergencies.
What is cash management in financial system? ›
Cash management comprises the operational and banking processes associated with the collection, aggregation, holding and disbursem*nt of cash. The Financial Management Act 1995 provides that Accountable Officers have specific accountabilities for the efficient, effective and ethical use of resources.
What is the role of cash flow in financial management? ›
Cash flow is the net cash and cash equivalents transferred in and out of a company. Cash received represents inflows, while money spent represents outflows. A company creates value for shareholders through its ability to generate positive cash flows and maximize long-term free cash flow (FCF).
Cash is the lifeblood of any company. In its absence, any business is likely to perish. Even an otherwise profitable business can still experience severe short-term cash flow issues – for instance, if it's incurred expenses creating goods or delivering services while it waits to receive payment from a customer.
What is effective cash management? ›
Cash management is a set of principles and associated practices to transfer funds efficiently and with certainty. Use the appropriate tools and practices to move funds; it may be advantageous to use banks as financial agents.
What is cash management advantages and disadvantages? ›
It also provides real-time visibility into cash flow and transactions, enabling better decision-making and financial management. However, challenges may arise in implementing and maintaining the system, including initial setup costs, staff training requirements, and potential compatibility issues with existing systems.
What can affect financial performance? ›
The higher the EPS value, the higher the company's profitability and vice versa. The five independent variables that affect financial performance are firm size, net working capital, firm performance, liquidity and financial leverage.
What will impact cash flow? ›
A change in the factors that make up these line items, such as sales, costs, inventory, accounts receivable, and accounts payable, all affect the cash flow from operations.
What is the impact of cash flow statement? ›
A cash flow statement is a valuable measure of strength, profitability, and the long-term future outlook of a company. The CFS can help determine whether a company has enough liquidity or cash to pay its expenses. A company can use a CFS to predict future cash flow, which helps with budgeting matters.
What is the function of cash management in finance? ›
Cash management is the monitoring and maintaining of cash flow to ensure that a business has enough funds to function. Investments, bill payments, and unexpected liabilities can affect a business' inflows and outflows, and in turn their cash management.
How important is cash management in the business? ›
When it comes to creating and sustaining a company's financial stability, cash management is a key component. Since “cash” is the primary asset used to pay obligations (whether you're an individual or company), it must be managed accordingly to maximize earnings. This impacts future growth for the company.
