What should be done with a short-term surplus of cash?

When faced with a short-term surplus of cash, the most strategic approach is to invest it to earn a return. This choice allows a business to leverage its excess funds rather than letting them sit idle, ultimately improving its financial position.

Investing the surplus can take various forms, such as placing the funds in short-term financial instruments, stocks, or other income-generating opportunities. By doing so, the organization can benefit from potential interest or returns, contributing to overall growth and profitability.

While holding the cash might seem appealing as a precaution against future losses, it does not provide any benefit in terms of generating income. Similarly, paying off long-term debt can be advantageous but might not offer the immediate financial returns that active investments could provide, particularly if the debt is not accruing high interest. Distributing the surplus as dividends to shareholders could also diminish the company's liquidity and limit future investment opportunities, impacting long-term growth. Thus, investing the surplus aligns with a proactive and growth-oriented financial strategy.