Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

War Chest

What it is:

A war chest is the cash set aside to deal with unexpected changes in a business environment or to take advantage of a sudden opportunity.

How it works (Example):

Uncertainties, unexpected events and opportunities occur regularly in business environments.  In most cases, these events cost money or jeopardize revenues. The ability of a business to handle these unexpected cash needs may mean the difference between success and failure, between new growth and missed opportunities. For example, a business may use a war chest to attempt a takeover of a competitor.  

Companies may accumulate cash in a reserve account to handle such contingencies. This cash account, which may be invested in short term and liquid investments, is referred to as a "war chest."

Why it Matters:

A company may consider that its ability to quickly borrow cash to handle a contingency is a critical element of its cash management process. The events that cause the need for the cash unexpectedly may create a difficulty for the business in borrowing from a lender.