This paper is an attempt to improve on the ability of financial management to arrive at a desirable or close to “optimal” cash balance for a firm at a point in time. There have been several comments on this subject in literature over the years including the contributions of Keynes, Hicks and Samuelson. In recent years Baumol and Beranek have presented us with more specific models. This paper tends to be more operational than the Baumol or Beranek presentations and hence tends perhaps to lose some of the sophistication of the more theoretical models; it attempts to present a reasonably operational method for providing for cash balances for transactions and precautionary purposes. But let us first examine these two models briefly.

In recent years, corporations have repurchased increasing amounts of their own common shares. The dollar value of repurchases increased from approximately $600 million in 1960 to $1.7 billion in 1964. To put these figures in better perspective, corporate repurchases were more than 50 percent of the net purchases of pension funds and twice the net purchases of mutual funds. From the viewpoint of the individual company, General Motors is a. striking example. Repurchases by General Motors accounted for over 20 percent of the total trading volume in that stock in 1963.

The hypothesis that corporate directors determine dividend payments by applying target payout ratios and related parameters to current and past earnings has gained widespread acceptance in recent years as a generally applicable account of dividend policy. One reason for the acceptance of this view appears to be its success in predicting the behavior of aggregate measures of dividends in time series regression analyses. The interpretation of these findings as supporting the target payout hypothesis may well be incorrect since the behavior of aggregate magnitudes need bear no direct and close relationship to the behavior of individual firms. This paper attacks the target payout hypothesis on two grounds: it shows that the behavioral characteristics of the firm assumed by the hypothesis have no satisfactory basis in managerial motivation; and it presents data relating to the dividend policies of individual firms for which the hypothesis fails to account.

Households and firms are now holding unprecedented amounts of highly shiftable, “liquid,” assets. Even the holding of currency has risen to a level requiring a formal Federal Reserve explanation. In the aggregate, such holdings have a potential to disturb consumer and inventory markets if economic units attempt substantial shifts between assets of one degree of liquidity to another, or a shift from liquid assets, money or near-money, to goods in the stores and materials in the warehouses.

Today great emphasis is being placed upon the need to maintain adequate supplies of money in the economy in the face of continuing balance of payments deficits. This emphasis reflects a desire to assure a. continuous high level of economic activity and low unemployment rates.

This paper examines the quantitative aspects of the small business investment company program. The total amount of investments made by SBICs is compared with the amounts of capital and loan funds which have been put into the SBIC program. Next, an attempt is made to determine the total direct dollar costs of administrating the program and the indirect costs associated with making SBIC investments. While the paper does not examine in detail all the qualitative aspects of SBIC investments, it does examine those qualitative features which affect the quantity of “legitimate” SBIC investments.