Float: What It Means and How It Impacts Investments

Understanding Float in Financial Analysis

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Question

Float refers to:

Answers

A. the number of days that a bank will allow a corporation to hold a negative balance in its checking account before charging fees for the negative balance.

B. the companies bank balance in excess of its working capital needs.

C. the receivable balance on the books of the corporation.

D. checks issued but not yet paid by a bank.

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Explanations

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A. B. C. D.

Companies, specifically those that are strapped for cash, will try and play the float by having a smaller balance in the bank than the level of outstanding checks that they have written. While it can certainly ease cash shortfalls, it can be troublesome when more checks clear than expected.

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