The best and strategically sensible way to determine what a company could do with excess cash on its balance sheet is delving into the organization's statement of cash flows. This financial synopsis tells you how much the company spent overall during the period under review, what it doled out the cash for and how much money it had at period-end.
If you review a company's balance sheet, you see other items alongside cash. As a short-term asset, cash makes it into the list of items the business intends to use within the next 12 months. When finance people say "short term," they mean one year; medium term and long term correspond to time stretches ranging from one to three years and three to 10 years, respectively. Not unusual is to have the term "long term" referring to a period that exceeds 10 years, though. Other short-term assets include customer receivables, merchandise and prepaid insurance. Besides assets, a balance sheet displays debts and investors' money, also called shareholders' equity.
An organization can use incremental cash to expand market share, attract customers, hire competent candidates and do all the necessary things to distance itself from the competition. In a global economy in which cash often drives a commercial wedge between the haves and the have nots, a business awash in money can set a strategically judicious course to improve its operations and set itself up for commercial success. Top leadership also could use the monetary bounty to pay vendors on time and cultivate tighter ties with business partners, such as service providers and suppliers.
Invest in the Company's Future
Department heads can use a positive influx of capital -- the other name for extra cash -- to renew machinery across a company's operating spectrum, improve production processes, maintain manufacturing gear and replace computer hardware that's unsuccessfully coping with obsolescence tedium. The main idea is to identify areas where the business is faltering commercially and do everything possible to buy new equipment and improve task execution over time. In a statement of cash flows, investing activities consist of purchases and sales of fixed assets, such as land, equipment and commercial dwellings.
Reward Investors and Lenders
Corporate leadership can put extra money to good use by repaying existing debts -- a smart move to make lenders happy and show them that senior executives are serious about proper risk management and long-term creditworthiness. Settling operating commitments before the due date also improves a company's credit score. In-house treasurers also could use supplemental cash to pay dividends and prevent shareholder exodus.