Considerations in Cash Management Strategy

Hard Working Capital Management Cash Management

Marina Corp. is evaluating its cash management practices. Currently, it maintains a cash balance that consistently meets its operational needs, but management believes that a more dynamic cash management strategy could improve returns. The company is considering investing excess cash reserves in short-term Treasury bills, which historically yield a higher return compared to the interest earned on its cash balance at the bank. However, there is a risk associated with locking up cash in investments that have a maturity period.

Which of the following statements best captures a consideration Marina Corp. should take into account regarding its cash management strategy?

Investing excess cash in short-term Treasury bills may lead to reduced liquidity, potentially impacting the company's ability to meet unforeseen operational expenses.

Maintaining a large cash reserve will always guarantee the highest returns for the company, regardless of market conditions.

Short-term investments are risk-free and will never result in a loss of principal, making them ideal for cash management.

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