Premium
Stockpiling Cash: How Much Is Enough?
Author(s) -
Cole Cathy J.
Publication year - 2014
Publication title -
journal of corporate accounting and finance
Language(s) - English
Resource type - Journals
eISSN - 1097-0053
pISSN - 1044-8136
DOI - 10.1002/jcaf.22001
Subject(s) - cash , cash flow statement , cash flow forecasting , market liquidity , cash management , balance sheet , business , balance (ability) , operating cash flow , cash and cash equivalents , finance , cash conversion cycle , monetary economics , cash flow , economics , medicine , physical medicine and rehabilitation
We all know that companies have been stockpiling cash. But how much is enough? What is optimal? The author of this article reminds us that while the cash on U.S. companies' balance sheets may have risen in recent years as a precautionary reaction to the global financial crisis, the rise in cash holdings at U.S. companies is not just a recent phenomenon. And when addressing significant cash balances in management discussion and analysis (MD&A), companies must consider limitations on cash accessibility and changes or trends in liquidity that may be particularly relevant as the economy improves. Regarding the size of cash balances, recent studies in finance and accounting have developed models to predict optimal cash levels, which may be useful in assessing the levels of cash on company balance sheets.