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Looking at the profile of companies across industries doing better this year
are the companies that exhibit high cash flows in their financial statements. Holding
and subsidiary firms of the Sys, Ayalas, Pangilinans, Gokongweis and recently even
the Lopezes have shown tremendous cash balances and favorable net cash from
operations. Even for retail and individual investors, a proper balance of cash relative
to other personal assets bring flexibility to the decision making purposes for
personal investing and expenditure management.
It is also a financial leverage tool for businesses and individual. Banks, basically,
look at cash flows as an indicator of repayment capacity. By having favorable cash
results from operations or several sources of personal income, businesses and
individuals can borrow money for acquisition purposes and leave internally
generated cash to pay off working capital needs, pay dividends and other
investment opportunities.
Cash provides a lot of advantages but hording excessive amounts for periods
of time are also a disadvantage. For one, you are subjected to opportunity cost on
an alternative investment. Second, you lose to inflation. Rule of thumb is that you
hold cash to meet obligations for less than two years; the rest should be properly
invested. By holding excessive amounts of cash for more than 2 years, you lose Php
116,400 with a million cash holding.
The pros of holding cash out weight the cons. Firms and individuals need to
constantly practice a balancing act of “spending and saving” to realize its full
benefit. Always remember that the value that saving provides stops where savings
is not spent. So manage your cash wisely, put the right amount in short term
deposits, placements, treasury bills and financial products suitable for its intended
us; but in excess it is best you invest it somewhere else to realize its full potential.