cash drain

cash drain

a constraint on the expansion of the MONEY SUPPLY through BANK DEPOSIT CREATION, caused by individuals retaining larger amounts of cash than usual. This means that not all of the increase in cash calculated by using the reciprocal of the RESERVE ASSET RATIO is passed on from the public back into the banking system. For example, a new deposit of £100 is made into the banking system. Assuming a 10% reserve asset ratio, the average fraction of money held in cash form is one-tenth and the reciprocal 10. Thus ultimately a £1,000 increase in money supply is theoretically possible. If the public's demand for cash grows, however, then the increase in the money supply will not be 10 times the initial deposit, but something less.
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Despite remarkable growth, management has kept working capital under control to prevent any major cash drain. The group's business profile is supported by geographic diversification.
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"When Mistry was there some actions were being taken at a group level which would have helped reduce the company's cash drain activities," said Daljeet Singh Kohli, research head at broker IndiaNivesh.
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All eyes now turn to whether the European Central Bank will increase the amount of credit the banks can draw on to make up for the cash drain. Analysts expect the ECB to not provide more emergency assistance today, meaning Greece might have to tighten its limits on cash withdrawals and transfers from the current 60 euros ([pounds sterling]42) per day.
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Meanwhile, Parikh adds that he also looks at working capital related metrics over a period of time, as it shows how the management constantly endeavours to avoid cash drain through good working capital management.
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Lacking permission to speak on the record, the source asked for anonymity in exchange for the information.Because of stagnant output, project delays and government-ordered fuel subsidies, Petrobras has seen its debt rise and cash drain away and is now the world's most indebted and least profitable major oil company, according to Thomson Reuters data.Petrobras has spent between $22 billion and $47 billion a year since 2008, one of the largest corporate investment programmes ever.
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