Optimization Method of Cash Balance
Optimization Method of Cash Balance

Summary/Abstract: Temporarily free funds management implies determining the optimal balance. Traditionally it is considered that the optimal cash balance is the balance when total value of lost profit and transfers is minimal due to non use of temporarily free funds. It is possible to determine the necessary cash balance on the settlement accountor cash on hand, and the necessary part of cash balance for conversion into short-term securities (deposits) in order to make a profit with the use of modern economic and mathematical models of optimal cash balance calculation (Baumol, Miller-Orr, Stone). Thus mathematical models of optimal cash balance calculation consider just two interrelated type of assets which are cash and short-term securities (deposits), and two types of factors determining optimal cash balance which are lost profits and the cost of transfer. In this case some factors remain unaccounted, in particular, expense for maintenance of financial responsibility of an enterprise. Such expense arises if there aren’t enough funds to extinguish financial liabilities. Changing of cash balance is purely deterministic in some models, while this changing has the only stochastic nature in others that does not match the reality. Thus, the task of an utmost importance is further developing the model of cash optimization, which is the aim of this research. Methodology of this research is based on the use of the systematic approach, which takes into account the interaction of various factors that determine the value of optimal cash balance, as well as regression analysis. As a result, the new economic-mathematical model is developed in order to calculate optimal balance of available funds. It differs from previously developed models and takes into account much more factors. This model uses statistical data for each particular enterprise as a basis for determining equations, which reflect the cash balance impact on the value of costs and losses that are accounted in the model.

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