The concept of a war chest has been in use for centuries, when rulers and governments stockpiled resources as a protection against an uncertain future. Today, business executives also set aside cash for uncertain times, for purposes such as launching new products. And in our increasingly hostile economic environment, businesses build up war chests as insurance against sudden economic downturns or costly acquisitions.

For companies with large and successful operations, war chests or cash reserves are growing faster than they can be deployed and can become a tricky problem. Any large cash reserve that has not been put to good use is viewed as a dead weight, and reducing the return on equity. Companies need to be cautious in deciding how to utilise their war chest and must deploy them strategically.

Businesses usually prefer to maintain a war chest with enough liquidity to help a business in times of need. This can include issues such as a substantial drop in sales or any extraordinary circumstances. The most commonly used way to maintain a war chest is to invest the surplus into short term investments such as treasury bills, liquid funds, and money market instruments.

A good way to optimise the use of a war chest is by looking for future opportunities. For example, a war chest can be used to purchase other companies. Microsoft, for example, has been aggressive in making use of its war chest to acquire new companies, developing products and technologies, and launching campaigns.

Apart from its use in uncertain times, a war chest also serves as a capacity for future growth. A war chest is a much better source for funding new projects, expanding operations, and launching new products for a company than going to the market for raising new capital.

In conclusion, war chest is an important asset in any company’s books and must be managed carefully. The cash reserve should be sufficient enough to support a firm against any external or internal crisis. It should be used strategically, to create future growth opportunities and launch new products. Companies need to balance the cost of keeping too much of a cash reserve against the certainty gained from being prepared for the unknown.