Any cash and cash equivalents more than required in the operations of the business is considered as excess cash.

You can estimate the cash required in the operations of the business is considered as excess cash in one of the following ways:

  • Look at the historical cash as a percentage of total assets or total revenues of the business you are valuing over a long horizon. Here we are addressing the specific charecteristics of the industry and behaviour of the management. This includes risk profile, financial strategy, etc.  
  • Look at the historical cash as a percentage of total assets or total revenues in the industry of the business you are valuing over a long horizon. Here we are addressing the specific charecteristics of the industry in estimating excess cash.