Target Cash Balance

AAA

DEFINITION of 'Target Cash Balance'

The ideal amount of cash that a company wishes to hold in reserve at any given point in time. This figure hopes to strike a balance between the investment opportunity costs of holding too much cash and the balance sheet costs of holding too little. Companies with excess cash on hand may be missing out on investment opportunities, while companies that are cash poor can often be forced to make otherwise undesirable transactions to free up more operating capital.

INVESTOPEDIA EXPLAINS 'Target Cash Balance'

It is wise for individual investors to set their own target cash balance as well. Through portfolio management and clearly defined financial goals, investors can at least approximate what percentage of their holdings should be in cash to avoid the pitfalls listed above.

RELATED TERMS
  1. Allocated Benefits

    A type of payment that comes from a defined-benefit retirement ...
  2. Allocational Efficiency

    A characteristic of an efficient market in which capital is allocated ...
  3. Allotment

    During an IPO, this is the number of shares granted to each participating ...
  4. Cash

    Legal tender or coins that can be used in exchange goods, debt, ...
  5. Cash Account

    A regular brokerage account in which the customer is required ...
  6. Cash And Cash Equivalents - CCE

    An item on the balance sheet that reports the value of a company's ...
Related Articles
  1. Operating Cash Flow: Better Than Net ...
    Markets

    Operating Cash Flow: Better Than Net ...

  2. What Are Corporate Actions?
    Bonds & Fixed Income

    What Are Corporate Actions?

  3. What Is A Cash Flow Statement?
    Markets

    What Is A Cash Flow Statement?

  4. I Want Christmas To Be Debt-Free
    Budgeting

    I Want Christmas To Be Debt-Free

comments powered by Disqus
Hot Definitions
  1. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  2. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  3. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  4. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  5. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
  6. Earnings Before Interest After Taxes - EBIAT

    A financial measure that is an indicator of a company's operating performance. EBIAT, which is equivalent to after-tax EBIT ...
Trading Center