Excess cash is cash that is excess to the operations of a company and is considered "negative debt" because the cash could be used to reduce debt. Therefore, there is a cost to excess cash, especially if not reinvested or returned to investors as dividends. True or false?

Excess cash is a term used in the for the residual cash flow of operation. It is calculated after adding the non cash expenses in the net income of the company and deducting all the capital expenditures. This is the cash balance which is available for the reinvestment purpose and for distribution to the stockholders. This cash can also be used to reduce the gearing of the company and there is a cost attached to it if used for payment of loan, which is the rate or return from the reinvestment of these cash flows.

gbenewaeternity gbenewaeternity · Answer 2 · 2020-04-06T10:40:54+02:00

Answer:

The correct answer is "True"

Explanation:

Any company at one point or the other can have excess cash. In order to know if the company is having excess cash, the company's expenditure is deducted from it's net income.

After the calculation, the excess cash obtained should be reinvested or it should be returned to investors as dividends. It could also be used to pay debt. No excess cash should be kept idle for a long period of time.