Venny Maulidah

Optimizing the Minimum Cash Balance in Supporting the Company's Operational Efficiency

Introduction

Optimizing the minimum cash balance in supporting the company's operational efficiency . Learn how optimizing minimum cash balance boosts operational efficiency in Indonesian manufacturing. Study uses IDX data (2018-2022) to provide practical financial management insights.

Abstract

This study analyzes the importance of optimal minimum cash balance management in encouraging operational efficiency, especially in the manufacturing industry in Indonesia. In this context, strategic cash management becomes vital to maintain a balance between liquidity availability and cost efficiency. The research was conducted using a quantitative approach using secondary data from the annual reports of manufacturing companies listed on the Indonesia Stock Exchange (IDX) during 2018–2022. Multiple linear regression analysis techniques were applied to evaluate the effect of the minimum cash balance on the operating efficiency ratio, which was calculated based on the ratio between operating expenses and revenues. The results show that optimally managed minimum cash balances have a significant impact on improving operational efficiency. This reflects that companies with structured cash policies tend to be more effective in utilizing resources and avoiding idle funds. This study presents practical insights for financial decision-makers in formulating cash policies that are aligned between liquidity and efficiency needs. In addition, this research opens up opportunities for the development of a cash management framework that is responsive to industry characteristics.

Review

This study tackles a highly pertinent and practical challenge in corporate finance: optimizing minimum cash balances to enhance operational efficiency, specifically within Indonesia's manufacturing sector. The abstract clearly articulates the research's objective to demonstrate the vital link between strategic cash management and a firm's ability to maintain liquidity while simultaneously controlling costs. Employing a quantitative approach with secondary data from manufacturing companies listed on the IDX over a five-year period (2018–2022), the methodology appears sound for investigating this relationship, setting a promising stage for robust findings. The research's strength lies in its empirical evidence, utilizing multiple linear regression to establish a significant positive impact of optimally managed minimum cash balances on operational efficiency. The finding that companies with structured cash policies are more effective in resource utilization and avoiding idle funds offers valuable, actionable insights. This directly addresses the practical needs of financial decision-makers, providing a clear rationale for formulating cash policies that strategically balance liquidity and efficiency. The study effectively highlights the benefits of a proactive approach to cash management, moving beyond simply maintaining sufficient funds to actively leveraging them for operational gain. While the study provides compelling insights, the abstract could benefit from a clearer definition or conceptualization of what constitutes an "optimal" minimum cash balance within the study's framework, as this is central to its premise. Future research building upon this foundation could delve deeper into the specific internal and external factors that define optimality for different sub-sectors within manufacturing or varying firm sizes. Additionally, while the study focuses on Indonesia, exploring the generalizability of these findings across different emerging markets or incorporating control variables such as macroeconomic volatility or industry-specific capital intensity could further enrich the research and provide a more comprehensive cash management framework. Despite these considerations, the study offers a valuable contribution to both academic literature and practical financial management.

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