What Is a War Chest?

"War Chest" is 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 short-term liquid investments, such as treasury bills and bank deposits, which can be accessed on-demand.

Understanding War Chests

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.

Cash and liquid cash equivalents as part of a war chest should never be overlooked, more recently, companies have started to include more intangible assets as part of a bigger war chest. These intangibles may include social capital, political capital and human capital — all can prove effective when launching a corporate raid, or defending against one.

The war chest of corporate entities will look different for various countries, industries, and business models. In a sense, no two are alike.

The "war room" is an unrelated but analogous business term. Businesses often assemble or refer to a war room, which is where core executives gather to plot and development high-stakes strategies. Modern war rooms will include the latest in audio, video, and communications technologies.