Question

1. Explain the pros and cons of having a large cash balance.

Answer 1

Pros:

1. A hugh cash balance helps a comapny to manage its cash flow. Even in some cases of economic downturn which results in fall in the revenue, the business will still have enough cash on hand to meet its obligations such as loan payments and employee expesnes.

2. With a large cash balance, a business doesn't need to borrow money as often

3. Can buy acquire other companies whhich have synergies for the benefit of the sahreholders.

Cons:

1. With hugh cash in place, you are not using the cash for investments which is bad idea for the long term. Comapnies should invest/expand to maintain a hold in the industry.