Question

Is it possible for a firm to have too much cash?

Why would shareholders care if a firm accumulates large amounts of cash?

What options are available to a firm if it believes it has too much cash?

How about too little?

Provide real world examples

Answer 1

Yes, it is possible for a firm to have too much cash as we can see in case of Apple.

shareholder will be caring if the company have large amount of cash because share holder want dividend payments and higher amount of cash will also mean that loss of investment opportunity

when the company will be having higher amount of cash, then company can either distribute that cash in form of dividend to the shareholders, or the company can also go for a re purchasing of the shares, or the company can also re-invest those money back into the market or the company can also look for mergers and acquisitions possibilities in the market so the company will be making those cash work by various means which will either satisfy the shareholders by quick realisations or it will increase their capital appreciation in the long run

when the company have too little cash, it will mean that the company have a lower liquidity and lower flexibility and it is re investing into the business

Apple is generally having very high amount of cash which gives it up ultimate opportunity for capitalising upon its market share because it eliminate the cost of debt to large extent