A Survey of the Cash Management Approaches Employed by Companies Quoted at the Nairobi Stock Exchange

Abstract

This study was a survey of cash management approaches employed bycompanies quoted at the Nairobi Stock Exchange. The objectives of the study were to fmd out the cash management approaches used by firms quoted at the Nairobi Stock Exchange, the extent to which cash management models are used by firms quoted at the Nairobi Stock Exchange as well as to fmd out the factors that influence the choice of cash management approaches used. Primary data was obtained using structured questionnaires. The questionnaires had both open ended and closed questions that were administered to all quoted companies though some did not respond. The data was analysed by using frequency tables, making cross tabulations to determine relationships between various aspects of cash management cash models and performance, Tables have been drawn to capture general trends. The fmdings indicate that quoted companies have specific policies in the management of their cash balances and plan for their cash balances. They have more than one planning period and the weekly planning period iS,the most popular. Most of the firms monitor their cash balances using .computers and some even have on line connections to their banks. Maximum, minimum and optimum cash levels are determined in an effort to minimise the costs of holding cash and to maximise the gains from cash balances held. The relationship between receipts and expenditure is regarded as important as it influences the way the firms fmance their cash balance. Receipts take the pattern arid direction of expenditure for many firms. This could be deliberately planned so that expenditure is fmanced from internal sources which are cheaper than external sources. However, the study also found extensive use of short-term fmancing in the form of overdraft facilities which are used for disbursement and cash balance replacement. Most of the quoted companies invest in marketable securities. This is done as a way of minimising opportunity cost of holding cash. Marketable securities ofless than 90 days are most popular. It is unfortunate that inflation and foreign exchange risks are not given as much weight as they should. In a country like Kenya, where inflation rates are high and foreign exchange rates are volatile, ignoring them could result in losses.