10.1. CASH AND NEAR-CASH INVESTMENTS
On every firm's balance sheet, there is a line item for cash and marketable securities, referring to its holding of cash and near-cash investments. Investments in short-term government securities or commercial paper, which can be converted into cash quickly and with very low cost, are considered near-cash investments. We begin by considering the motives for holding cash and the extent of such holdings at companies. We then discuss various approaches used to categorize cash holdings and how best to deal with cash holdings in both discounted cash flow and relative valuations.
10.1.1. Why Do Companies Hold Cash?
Every business has some cash on its books, and many have very large cash balances as a percent of their values. John Maynard Keynes provided three motives for individuals to hold money. He suggested that they hold cash for transactions, as a precaution against unanticipated expenses, and for speculative purposes. It can be argued that firms accumulate cash for the same reasons, but there is an added incentive. The separation of management and stockholders at large publicly traded companies can create an incentive for firms (or at least the managers in these firms) to accumulate cash.
 J. M. Keynes, The General Theory of Employment, Interest and Money (New York: Harcourt, Brace & World, 1936).
 Tim Opler, Lee Pinkowitz, René Stulz, and Rohan Williamson, "The Determinants and Implications of Corporate Cash Holdings," Journal of Financial ...