Cash and Marketable Securities Management

Cash forms the method of collecting revenues and paying various costs and expenses of the business. At any one time there is almost certainly going to be a stock of cash in hand or some liability of cash owing. This is shown in the balance sheet under the headings cash in hand and bank balances or, if there is a negative bank balance, as a bank overdraft. (Note that from now on cash and current-account bank accounts will be used synonymously and deposit accounts will be treated separately with marketable securities as ‘liquid assets’; the reason for the differentiation is that payments are made out of the current accounts and that it takes some time to convert deposit accounts and marketable securities into current-account cash.) The reasons for holding cash have traditionally been divided into three categories as postulated by Keynes1, the transaction’s motive, the precautionary motive and the speculative motive. Each of these will be considered in turn.