Planning Optimal From the Firm Value Creation Perspective Levels of Operating Cash Investments
AbstractThe basic financial purpose of corporation is creation of its value. Liquidity management should also contribute to realization of this fundamental aim. Many of the current asset management models that are found in financial management literature assume book profit maximization as the basic financial purpose. These book profit based models could be lacking in what relates to another aim like maximization of enterprise value. The corporate value creation strategy is executed with a focus on risk and uncertainty. Firms hold cash for a variety of reasons. Generally, cash balances held in a firm can be called considered, precautionary, speculative, transactional and intentional. The first are the result of management anxieties. Managers fear the negative part of the risk and hold cash to hedge against it. Second, cash balances are held to use chances that are created by the positive part of the risk equation. Next, cash balances are the result of the operating needs of the firm. In this article, we analyze the relation between these types of cash balances and risk. This article presents the discussion about relations between firm net working investment policy and as result operating cash balances and firm value. This article also contains propositions for marking levels of precautionary cash balances and speculative cash balances. Application of these propositions should help managers to make better decisions to maximize the value of a firm.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1301.3824.
Date of creation: Jan 2013
Date of revision:
Publication status: Published in Romanian Journal of Economic Forecasting 1 2010, 198-214
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Other versions of this item:
- Michalski, Grzegorz, 2010. "Planning Optimal From The Firm Value Creation Perspective. Levels Of Operating Cash Investments," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 198-214, March.
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- P34 - Economic Systems - - Socialist Institutions and Their Transitions - - - Finance
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