Company’s Cash Surplus: What is it?

Welcome to a world where financial success and stability are within your grasp. Whether a seasoned entrepreneur or aspiring business leader, one can learn how to manage your company’s cash surplus. Indeed, understanding is the key to unlocking your business’s true potential. Let’s dive into the art of optimizing your excess cash. Get ready!

What is cash surplus?

A cash surplus refers to a financial situation in which a company has more cash/liquid assets than it needs to cover its immediate and near-term expenses/obligations. In other words, it is the excess cash available beyond what is required for day-to-day operations, debt repayments, investments, and other financial commitments.

What does it mean?

A cash surplus indicates a positive cash flow. It is an economic strength, along with flexibility and opportunities for the company. With it, one can do investing, expand operations, pay dividends, or reduce debt.

How to calculate cash surplus?

The cash surplus consists of the net cash inflows and outflows over a given period, typically a fiscal year. It takes into account all sources of cash and deducts all cash expenditures. The formula for calculating the cash surplus is as follows

Cash Surplus = Cash Inflows – Cash Outflows

The constituent components of cash inflows are as follows:

  1. Operating revenues are the income generated from core business activities (including sales revenue, service fees, or licensing income.)
  2. Investment income: Earnings from investments, such as dividends, interest, or capital gains.
  3. Financing inflows: Cash received from external financing activities, such as loans, issuing bonds, or equity investments.


Cash outflows consist of various expenses and payments, including:

  1. Operating costs: Expenses related to conducting business operations, such as raw materials, salaries, rent, utilities, and marketing expenses.
  2. Capital expenditures: Cash spent on purchasing or upgrading assets, including property, equipment, or technology.
  3. Interest and debt payments: Cash used for repaying loans, interest charges, or other financial obligations.
  4. Taxes: Cash payments for income taxes or other tax liabilities.

By subtracting the total cash outflows from the total cash inflows, determine the cash surplus or deficit for the given period.

It’s important to note that the cash surplus formula may vary based on the specific context and desired level of detail. Additionally, financial statements and reports, such as cash flow and income statements, provide comprehensive information on cash inflows, outflows, and surplus/deficit.

How to manage cash surplus?

By strategically growing your company’s excess cash, you can unlock several benefits, including increased profitability and enhanced financial stability. Here are the exact steps to manage your cash surplus:

  1. Assess your financial position:
    1. Review your current cash flow statement, balance sheet, and income statement to understand the extent of the cash surplus and its sustainability.
    2. Analyze your short-term and long-term financial goals to determine how the surplus can contribute to achieving them.
  2. Define objectives:
    1. Set clear objectives for cash surplus management. Examples include improving financial stability, funding growth initiatives, reducing debt, or maximizing shareholder value.
  3. Establish cash reserves:
    1. Allocate a portion of the cash surplus as cash reserves or an emergency fund. It provides a safety net for unexpected expenses or economic downturns.
  4. Evaluate debt reduction opportunities:
    1. Identify high-interest debts or loans and consider using the cash surplus to pay them off. It helps lower interest expenses and improves the company’s financial position.
  5. Assess reinvestment options:
    1. Evaluate growth opportunities within your business, such as expanding operations, launching new products/services, or upgrading technology. Allocate funds from the surplus to these strategic investments.
  6. Consider dividends or share buybacks:
    1. If your business has shareholders, assess the possibility of distributing the surplus as dividends or initiating a share buyback program. Consult with legal and financial advisors to determine the most suitable approach.
  7. Diversify investments:
    1. Explore investment options that align with your risk tolerance and long-term objectives. Consider investing a portion of the cash surplus in diversified portfolios, stocks, bonds, or other investment vehicles.
  8. Continuously monitor and adjust:
    1. Regularly review your financial performance, cash flow projections, and investment returns. Adjust your cash surplus management strategy based on changing business needs and market conditions.
  9. Seek professional advice:
    1. Consult with financial advisors, accountants, or business consultants who can provide expertise and guidance tailored to your business circumstances.

Where to learn more about cash surplus?

It is a good idea to grow your financial literacy. You can explore various educational resources and courses to learn more about cash surplus, its management, and related financial concepts. Here are some options:

1. Online Courses and Platforms:

  • Coursera: Offers finance, accounting, and financial management courses covering cash flow analysis and financial planning.
  • Udemy: Provides a wide range of courses on finance and accounting, including cash flow management and financial analysis.
  • LinkedIn Learning: Offers courses on financial management, cash flow analysis, and corporate finance.

2. Financial Management Books:

3. Professional Associations and Publications:

  • Association for Financial Professionals (AFP): Provides resources, publications, and educational events focused on financial management and cash flow topics.
  • Financial Executives International (FEI): Offers resources, webinars, and conferences addressing various financial management aspects, including cash flow and liquidity management.

4. Business School Programs for those who want to go further:

  • MBA programs with concentrations in finance or accounting often cover cash flow management and financial analysis topics.
  •  Executive education programs or workshops offered by reputable business schools may provide specialized training on financial management and cash surplus.

Research and evaluate any educational resource or course content, credibility, and relevance before investing time and money. It’s also beneficial to consult with finance professionals or seek guidance from experienced mentors to gain practical insights and perspectives.


Growing your company’s excess cash requires careful planning and strategic decision-making. You can maximize returns and strengthen your company’s financial position by evaluating investment options, monitoring performance, considering internal growth, and managing risks effectively. Thus, seek professional advice when needed to ensure the best outcomes for your business.

About Author

Ben Adam is a dedicated in-house copywriter at Wittix, a leading money transfer services company. With a passion for crafting compelling content and respect for clients, Ben has been creating engaging and informative articles that captivate readers and provide valuable insights into finance, money transfer, and related topics.

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