Sitting on Excess Cash Costs the Company and Shareholders

Cash is often referred to as a “non-earning asset.” Cash and cash equivalents swept into liquid investment accounts earns very little return. Cash is needed to fund current operations, provide compensating balances for the banks to maintain favorable credit ratings, to take advantage of vendor and supplier discounts, to fund capital projects and for speculative or emergency needs such as an acquisition of another firm. The amount of cash a company holds should be based on its annual cash budget, which should define the amount required to meet these needs.

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