War Chest - in Business

In Business

In business a war chest, or cash mountain is a stash of money set aside to deal with unexpected changes in the business environment, or to use when expansion possibilities arise. The term originates with the medieval practice of having a chest, literally, filled with money to open in time of war.

Today companies can use accumulated cash or rely on quickly raised debt which costs less to carry when you don't need it. This is not always a reasonable substitute, as the debt available to a company typically drops as a result of the same actions that require the war chest to be opened.

Companies can redistribute their war chests to shareholders by issuing larger or special dividends, or more commonly through share buyback operations. Companies do this because if actually held in cash, the companies will be earning a low rate of return in the money markets, whereas they could be using the funds to invest in more profitable projects. If they continue not to invest the funds, shareholders may sell the company's shares and make it vulnerable to a takeover. This would place the current management's jobs at risk.