A model for cash management: An aquaculture case study

The problem of maximizing interest earned on cash surplus gained from a firm's operation can involve considerable complexity, especially when there are seasonal factors and uncertainty involved. The network flow model with gains and losses for use in cash management was first presented in 1979 by Golden and Libertore. Their model is deterministic, but in this thesis, stochastic techniques are implemented to the model, as well as introducing different asset classes. Value at risk (VaR) is commonly used in the financial industry to quantify risk in asset portfolios. Cash-flow-at-Risk (CFaR) has been considered the VaR alternative for non-financial firms, by quantifying the potential loss in earnings from operations. In this thesis, the CFaR is implemented to the network flow model to determine the minimum level of cash in the operation of an aquaculture company. For this strategy to be successfully implemented it is necessary to include a rolling planning horizon to achieve the optimum investment strategy. There is considerable number of risk factors involved in the operation of an aquaculture company. The price of salmon has historically been very volatile and difficult to predict. The operations of an aquaculture company involves cycles and periods of low and high margin. In such cases, effective cash management is important. By retaining earning from periods of high earning to meet the potential lower margin periods is a step toward ensuring that the company has enough cash resources to meet its future obligations