Holding Too Much Cash
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Because of a new product line, your company's sales over the last few months have increased significantly. As a result, the amount of cash held by the company has increased to levels never experienced before. An evaluation by the company's financial staff concludes that the company is holding too much cash. This situation is reported to the stockholders. How do you think the stockholders would react to this information? What options do you have to deal with the concerns of the stockholders without creating any additional risk?
Just-in-time (JIT) inventory systems were first developed by the Japanese and quickly adopted around the globe by many large firms. One of the first to adopt the system in the United States was the automobile industry.
In your opinion, is the JIT system a system that can and should be adopted by small, individually owned firms? Why or why not?
Would the smaller firms have any advantage in terms of their ability to use such a system? Why or why not?
What would be the benefits of employing such a system in the economy?
Explain your answers using examples.
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Solution Summary
The response provides you a structured explanation of handling a situation where the company is holding too much cash. Also, the problem of implementing Just-in-time in small businesses is discussed . It also gives you the relevant references.
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Holding too much cash:
When the company is holding too much cash and this matter is reported to the stockholders, the normal reaction of stockholders is that the company should distribute the money as dividend to the stockholders. This is risky because the company may require the cash for investment in new product lines, replacement of machinery, or higher requirements for working capital.
The options that can be used for satisfying the shareholders is that the company should put its money in liquid instruments and short term instruments so that they could get a decent return while the cash is not required. The cash generates some income. The concerns of ...
Education
- BSc , University of Calcutta
- MBA, Eastern Institute for Integrated Learning in Management
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