Cash Balances in Excess
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Cash Balances in Excess
Businesses focus on ventures and investments that would raise their revenues and every coin within the organization put into use or invested to generate more income (Bathala, 2011). Companies can have an additional amount at disposal beyond what they require running operations entirely above the limits of the extra cash set for a corporation to hold. Such money is viewed as non-productive assets since they are not generating revenue for the company and at the same time not spent to support any activity of operations (Williams, 2012). Company stunning performance and increased sales among another factor may lead to hype in cash revenues that may render the company to hold excess cash.
Excess cash in balances should be put on investments and use that would benefit a company in the end if not to return to stakeholders if the board approved (Lee & Powell, 2011). Investors would naturally raise a concern why a company is holding cash in excess other than being put into productive use to meet their focus. If an organization’s management had ideas about opportunities and investment plans, then there cannot be a reason for excess cash, and so that can be a reason to worry about the future of that business (Darranji, Jahanshahi, & Sadeghi, 2014). Payment is expected to earn a company profits or interests, and to hold it comes with the opportunity cost and as a mistake since the same can be used to benefit the business more.
If a company runs out of options and views the cost of expansion and investing in new projects to be lesser the costs, then the company should give the excess cash to investors (Ebben, & Johnson, 2011). Managers must control the spending of the company to curb reckless spending and waste and ensure that the company only holds cash within set limits, and the rest are put into better use. Companies must make sure that they convert the excess cash into earning to avert any financial related risks and increase returns on assets (Simutin, 2010).