What Is a War Chest?

"War Chest" is a colloquial term for the reserves of cash set aside or built up by a company to take advantage of an unexpected opportunity. While a war chest is typically used for acquisitions of other companies or businesses, it can also be used as a buffer against adverse events during uncertain times. A war chest is often invested in short-term investments, such as treasury bills and bank deposits, which can be accessed on-demand.

Understanding War Chests

A war chest that has swelled up too much can sometimes be viewed as an inefficient way of deploying capital. While investors may be willing to give a company with a huge cash hoard the benefit of the doubt for some time, if the cash balance continues to grow well beyond the company's normal operating requirements, its investors may clamor for a share of it.

If the company is unable to deploy its war chest efficiently, it may consider distributing part of its cash holdings to its shareholders. Such return of capital to shareholders is usually achieved either through a special dividend distribution, an increase in the regular dividend, a share buyback, or a combination of these measures.

Special Considerations

Companies may rely on debt instead of cash, however, to fund acquisitions or pay unexpected expenses. This allows companies to carry less cash, especially if they have credit available. On the flip side, companies often choose to redistribute their war chest to shareholders via special dividends or buybacks.  

Types of War Chest

Cash and liquid cash equivalents are a key part of a war chest. More recently, companies have started to include more intangible assets as part of a bigger war chest. These intangibles may include social capital, political capital, and human capital—all can prove effective when launching a corporate raid, or defending against one.

The war chest of corporate entities will look different for various countries, industries, and business models. In a sense, no two are alike.

Examples of War Chests

War chests of cash are used to fund purchases and investments. Looking at how these change over time can give a picture of a company's near-term prospects.

Analysts and the media like to focus on the war chest of Apple (AAPL), which has historically had a large cash hoard. Apple had $27.5 billion in cash on hand as of June 25, 2022, down from $35 billion a year earlier. The company, after getting pushback from shareholders, had started buying back shares and paying a dividend to put some of its cash to use. 

Another example of a closely watched war chest is Warren Buffett’s Berkshire Hathaway (BRK.B). The company had $26.5 billion in cash as of June 30, 2022, down from more than $85 billion at the end of 2021. Analysts watch Buffett’s cash position and speculate on companies that it might purchase, and the significant dip in these six months reflects Berkshire's buying spree in stocks as markets dipped, including a large stake in Occidental Petroleum (OXY).