Academic journal article Journal of Contemporary Management Research

Divergence in Cash Position Metrics: An Appraisal of Metal Industry in India

Academic journal article Journal of Contemporary Management Research

Divergence in Cash Position Metrics: An Appraisal of Metal Industry in India

Article excerpt


Cash management is a widely debated area and has a direct bearing on the performance of an organization. Cash is a crucial asset in the balance sheet of a firm and plays a major role in keeping an organization liquid and prevent it from bankruptcy. The term, cash management is a broader topic which extensively covers all cash receipts, cash payments and managing cash flow within the organization. In the general sense cash management refers to managing firm's liquidity and investing surplus cash in profitable ventures. Cash management is a simple process if a firm is able to predict their cash inflows and outflows accurately. But always cash inflows from receipts do not perfectly coincide with the cash outflows for disbursements. So the firms will have to adopt new and innovative strategies for managing their cash flows to keep their business going.

This research work intended to examine the general cash management practices adopted by metal industry in India. Based on research reports from the Indian Brand Equity Foundation (IBEF);the metal and mining industry of India has recorded a strong 19.8 per cent expansion in 2011 to touch US$ 141.9 billion and is expected to reach 305.5 billion by 2016. In addition to this India's iron and steel exports increased at a CAGR of 4.2 per cent to US$ 8.1 billion over FY 2008-13. The report also highlights that untapped metal reserves in India are to the tune of 82 BT. Strong long-term demand from the steel industry is expected to further boost the iron ore industry. The above factors signify that the companies within this industry are expected to flourish in the upcoming years. In this context, it is quite desirable to check the cash management practices employed by various firms operating in metal industry and to observe whether firms are employing different mechanism for managing their cash flows.


In the words of GitmanL.J(1984), managing cash cycle is one of the key elements in corporate cash management, which involves speeding up cash receipts and slowing down cash disbursement so as to free up as much cash as possible.

According to Mao and Sarndal (1978) in any firm cash management is concerned with three problems. (a) The amount of liquid resources to be held, (b) the division of liquid resources between cash and marketable securities, and (c) the maturity structure of the marketable securities portfolio.

Yilmaz (2011) has created a new model for cash management. According to him "Cash management model covers cash flow ratio analysis, cash improving activities, management of excessive cash by classifying as free cash flow and dependent cash flow, and financing cash gap. The financial statements are Balance Sheet, Income Statement, and Statement of Cash Flows. Cash flow ratio analysis covers some cash flows ratios such as cash flow adequacy, long term debt payout, dividend payout, reinvestment of cash, debt coverage, and depreciation effect. Cash improvement activities are decreasing cash cycle, improving cash dividend payout., new payment systems, managing cash in inflational environment, efficient currency management, barter trade, leasing, using subsidiaries, cash break even point, etc.

The primary goals of a good cash management system are to maintain adequate cash in hand to meet the daily cash requirements while maximizing the amount available for investment and to obtain the maximum earnings on invested funds while ensuring their safety; says Kumshe and Bukar(2013).

A study was conducted by Ghosh(2011) on cash management performance by taking sample data from two Indian companies viz. SAIL and TSL. The research concludes that TSL has used its cash more effectively than SAIL. The results were derived on the basis of conducting Fisher't' test on the financial data of those companies.

Bhundia (2012) examined and compared free cash flows in the firms listed in Indian Stock Exchange with an emphasis on earning management. …

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