MAINTAIN FINANCIAL LIQUIDITY TO “INSURE” YOUR EQUITY
We have seen analysts and agencies placing a greater emphasis on carrying a stronger cash and liquidity position, yet low interest rates have led to some large short-term floating-rate debt portfolios. A combination of the following actions enhance liquidity:
Essentially, two types of cash draws exist: expected and unexpected. Events whose timing and amount are determined are a draw on operating cash flow and external financing. For example, repayment of a previously incurred liability or contractually obligated payments such as underfunded pensions and postdirect benefits. Events that are uncertain with respect to amount, timing, or occurrence are a draw on liquidity. Financial and operating leverage magnify their impact, but liquidity should be sufficient to absorb these events, such as volatility of interest rates, prices, costs or volumes, environmental liabilities, litigation.
Cost of Financial Liquidity
The costs of holding too much cash are more apparent in this low interest rate environment than ever, with a low rate of return earned, double taxation of interest income, ...