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Running head: CASH FLOWS
Ways to spend excess cash
The primary goal of a company to use its excess cash is to increase its total value to either
its investors or the customers. In this regard, companies may use multiple strategies to create
value through their excess cash. The two most commonly used procedures involve the
repurchase of outstanding stocks and the reinvestment of the surplus money on funding the
research and development department (Khan, Bibi & Tanveer, 2016). Among them, the
repurchase of outstanding stocks presents the most advantages from the potential investors of the
company, as this strategy often offers the investors a higher rate of return on their investment.
For instance, a company like Apple decided on 2017 to spend part of its excess cash
through repurchasing part of its outstanding shares (Bayar, Chemmanur & Liu, 2017). Through
this strategy, the company was increasing its value concerning the investors, since the decreased
number of outstanding shares increased the earnings per share of the company, enabling it to pay
one of the highest dividend payoffs to its investors. Moreover, the price of the Apple stocks
increased by 11% within a few weeks as a result of the purchases of shares by investors attracted
by the possibility of earning higher dividend payoffs.
Impact of cash flow and income statements on th...