What is a recommended action regarding a long-term surplus of cash?

Investing long-term surplus cash in longer-term projects to increase shareholder wealth is a strategic approach that aligns with the goal of maximizing returns on capital. By engaging in longer-term investments, a company can leverage its surplus to drive growth, enhance its market position, and generate significant returns over time.

Long-term projects typically involve investments in initiatives that have the potential to yield returns over a more extended period, such as research and development, infrastructure development, expansion into new markets, or acquiring new technologies. These kinds of investments help ensure that the capital is not sitting idle and are more likely to lead to increased profitability in the future.

In contrast, investing surplus cash in short-term projects might not take full advantage of the available capital, and although reducing operational costs can improve efficiency, it may not create as much value as investing in growth-oriented projects. Holding it as cash reserves may provide liquidity, but it doesn’t utilize the surplus effectively for future growth or shareholder wealth maximization. Therefore, strategically investing in longer-term projects offers a more viable solution for enhancing shareholder value over time.