War Chest


DEFINITION of 'War Chest'

A colloquial term for the reserves of cash set aside or built up by a company to take advantage of an unexpected opportunity. While a war chest is typically used for acquisitions of other companies or businesses, it can also be used as a buffer against adverse events during uncertain times. A war chest is often invested in liquid short-term investments, such as treasury bills and bank deposits, which can be accessed on demand.


A war chest that has swelled up too much can sometimes be viewed as an inefficient way of deploying capital. While investors may be willing to give a company with a huge cash hoard the benefit of the doubt for some time, if the cash balance continues to grow well beyond the company's normal operating requirements, its investors may clamor for a share of it.

If the company is unable to deploy its war chest efficiently, it may consider distributing part of its cash holdings to its shareholders. Such return of capital to shareholders is usually achieved either through a special dividend distribution, an increase in the regular dividend, a share buyback or a combination of these measures.

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