How to tell if you have too much cash

If a company has too much cash, should it return the money to its shareholders? That’s the purist’s solution, Samar Srivastava explains in Forbes India. But there are several answers to the excess-cash question. In industries with strong up-down cycles, companies can be expected to hoard cash. In other industries, an oversized war chest may be a signal of an indecisive executive – and, instead, a share buyback or investor dividends programme might increase the valuation of the company. One expert’s advice for investors: Ignore excess cash and associated treasury income as you calculate return on equity.

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