Cash Management involves the optimal financing of net cash outflows and investing net inflows of a firm, while simultaneously determining payment schedules for existing liabilities. We formulate this as a generalized transshipment model to minimize the total cost of allocating sources of funds to existing uses, while retaining the flexibility of transshipping cash among existing sources. Utilizing a numerical example of Orgler, which is solved using Linear Programming, we compare our model with its ordinary transshipment reformulation by Srinivasan. We provide a richer formulation than earlier formulations in the literature for two reasons. First, due to our model flexibility, we can provide a unique shadow price for each source-use possibility which is not available in Orgler. Second, we can address and capture the time value of money in both directions which is not possible in Srinivasan's model. Extensions of our methodology for post-optimal and sensitivity analysis, minimum cash balance requirements and other institutional constraints are outlined in our computationally efficient model formulation. Other applications are identified in the conclusion.
ASJC Scopus subject areas
- Economics, Econometrics and Finance (miscellaneous)