Question

identify a large company that is currently accumulating a cash hoard, evaluate how the company can use the cash flow statement to project efficient uses of the cash hoard it has accumulated. Suggest at least two (2) advantages and two (2) disadvantages of companies accumulating cash hoards. Provide a rationale for your suggestion.

Answer 1

Solution:-

A cash hoard is a large amount of available money held on hand by a company. Typically, this amount is much larger than what would be needed to satisfy short-term liability obligations. The reason for the cash hoard could be anticipation of facilitating future projects or meeting future financial obligations. At times, carrying a large cash hoard can be used as an insurance policy against downturns in the business. A cash hoard held by a company often makes the company attractive as a target of acquisitionbecause of its sound financial situation.

An additional company which is earning a huge amount of cash flow is Alphabet. The company is a collection of companies which include Google, Maps, YouTube, Chrome and Android. According to Deagon (2016), the company ended the second quarter of 2016 with $ 78 billion just being Microsoft.

Google Inc. is a large company which is accumulating cash hoard. Google is servinglarge number of internet customers all over the world and providing them web based productsand services. Increasing number of customers and large client following has Enable Company toearn large amount of revenue. Increasing cash inflow in the company is causing cash hoard.

Advantages

Through cash hoard, the company would have certain amount of cashin its hand that would enable the company to pay its short term debts quiteeasily. It will provide ease the firm to cater its short term needs. Companyalways need to have some short term cash in its hand in order to fulfill itsn need and cash hoarding will provide the opportunity to fulfill company shortterm needs.

Company cash hoard is ultimately a sign of its achievement. Thecompany can use its cash any time when it’s required.

Disadvantages

Cash hoarding decrease the value of stock. When shareholders seethat the value of stock is held by the cash, they give less value to thecompany stocks and become restless and the company stocks yield lowreturn.

Cash hoarding would not be very beneficial as cash hoarding will freezethe money of the company. It will increase the opportunity cost of the firm.Instead of hoarding, if the company will use to invest it in some productiveprojects, it would provide additional benefits to the company and will reducethe opportunity cost of the firm. Cash hoarding means less investment whichultimately leads the company towards low profitability in future.

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