Minimum CashHow do I determine the „operational minimum cash level“ of a company or corporate group?
In order to optimally control liquidity within a company, corporate group, bank, or governmental institution an important operating figure is needed: the operational minimum cash level (short: minimum cash).
Knowing how high the operating cash balance of a company or group should be in any one month can be useful in a number of ways. This operating figure can be used to determine whether excess liquidity or a liquidity deficit can be expected at company or corporate group levels. This knowledge can be useful when making decisions in regards to intra company dividends or intra company financing, but also for external investing or funding.
In the past it was difficult to determine this operating figure. Either the approaches or methods were mere estimates or based on the experience of individual employees, but never really on sound numbers and therefore nearly impossible to contest. To brief management about such a figure was equally difficult.
With the new method developed by Mr. Thorsten Hadzik, he managed to calculate an operational minimum cash level based on historical cash balances. This figure is easy to determine. Due to the fact that it is based on historical numbers, it is quickly accepted by everybody.
Additionally other measures can be derived from and explained by this new methodology, for instance how to further reduce minimum cash. This is the point, at the latest, when all previous models to determine minimum cash fail.
The key to calculating minimum cash lies in its definition. Minimum cash is the maximum cash outflow in any one month and therefore corresponds to the minimum cash level required for that month. Based on this definition or simplified assumption, the minimum cash can be calculated as the difference between the maximum and minimum cash balance of a company within any one month (max-min method).
DerTreasurer - Article about "Minimum Cash" on page 8 (in GERMAN)
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