Miller-Orr Cash Management Model Calculator
Example: Company PQR Case Study
Given:
Lower Limit = ₹25,000
Variance = 5,760,000 (σ = 2400)
Transaction Cost = ₹5,000
Annual Interest Rate = 6.2%
Solution:
Optimal Return Point = 25,000 + 1/3 [3√((3×5000×5760000)/(4×(0.062/365)))]
= 25,000 + 1/3 × 150,819.05
= ₹75,273.02
Interpretation:
Company should maintain cash between ₹25,000 and ₹1,75,819.05,
with ₹75,273.02 as the target balance for securities transactions.
About the Miller-Orr Model
Description:
The Miller-Orr Model is a stochastic cash management approach that determines optimal cash balance levels using three parameters:
- Upper Limit (Maximum cash threshold)
- Return Point (Target balance for fund transfers)
- Lower Limit (Minimum safety stock)
Advantages
- Accounts for cash flow variability
- Minimizes transaction costs
- Optimizes interest earnings
Limitations
- Assumes normal cash flow distribution
- Requires accurate variance estimation
- Doesn't account for seasonal variations
Disclaimer
This tool provides theoretical calculations for educational purposes. Actual cash management should consider market conditions, company policies, and professional financial advice. Results may vary based on input accuracy and model assumptions.
| Feature | Details |
|---|---|
| Price | Free |
| Rendering | Client-Side Rendering |
| Language | JavaScript |
| Paywall | No |
0 Comments