Cash is one of the most important current asset for the operations of the business. In other words, cash is the basic IMPUT to keep the business running on a continuous basis.

On the OUTPUT side, it is also the ultimate output expected to be realized by selling services or products produced by the firm.

Consequently, a firm should endeavor to keep adequate cash, as cash shortage has the capacity to disrupt a firm’s operation while excess cash will simply remain idle without contributing towards the firm’s profitability.

Cash includes money, cheques, balances in the bank. Others which are not immediately spendable are called near -cash items such as fixed deposits, treasury bills. The basic character of near cash assets is that they are readily convertible into cash.

So where a company has excess cash it can convert it into marketable securities which is a form of investment that contributes some profits to the firm.