What is the likely action to take with a short-term surplus of cash?

Investing a short-term surplus of cash is a strategic decision that allows the organization to maximize the potential returns on its available resources. When cash is invested, it can generate interest or capital gains, thereby enhancing the financial position of the company. This approach recognizes that holding onto cash without generating a return can lead to opportunity costs, particularly in an environment where inflation may erode the purchasing power of that cash over time.

Investing the surplus can take various forms, such as putting it into short-term financial instruments, stocks, or bonds that are low risk while ensuring the cash remains relatively liquid. This allows the company to maintain access to cash when it does need to cover expenses or respond to unexpected costs while still benefiting from growth opportunities.

While saving the cash until needed does provide security, it does not leverage the cash for potential gains. Paying off long-term debts could be financially sound, but it does not necessarily make the best use of surplus cash, especially if the interest rates on those debts are lower than potential investment returns. Using the surplus for employee bonuses may boost morale and incentivize staff but does not contribute to the financial growth of the organization itself in a way that investing would. Therefore, investing the surplus is often the preferred action for companies looking to