Risk-Based Cash Demand In A Firm

Maximization of enterprise owner's wealth is the basic financial aim in management. Cash management must contribute to the realization of this aim. This paper presents a determination method for precautionary and speculative levels of cash in a firm. High levels of cash in a firm increase net working capital and costs of holding cash: both of which decrease the value of a firm. Corporate cash management depends on demands for cash in a firm. The aim of cash management is such that limiting cash levels in the firm maximizes owner wealth. Cash levels must be maintained so as to optimize the balance between costs of holding cash and the costs of insufficient cash.