Skip to comments.Can People or Corporations Have Too Much Cash?
Posted on 02/15/2013 1:49:32 PM PST by Kaslin
Is it possible to have too much cash for your own good?
I believe the average 7th grader would easily recognize the inherent absurdity of such a question. However, the average economic writer does not understand what the average 7th grader does.
For example, please consider Apple isn't the only company with too much cash on CNN Money by author Paul La Monica.
Issuing preferred shares that pay a big dividend may not be the best use of Apple's more than $137 billion of cash and liquid investments. But hedge fund manager and Apple shareholder David Einhorn, who is pushing the maker of iEverything to reward investors with a new class of high-yielding stock, has a point.
Apple should be doing something more productive with its more than $137 billion in cash. Did I mention that Apple (AAPL) has more than $137 billion in cash?
And it's not alone. Several leaders in the tech and pharmaceutical industries are hoarding cash. ....Mercy Me
Mercy! Corporations have too much cash! And they are hoarding it!
My Goodness. It's no wonder their stocks are doing poorly. Why everyone knows making money is bad business and spending money isn't.
Yes readers, this is the way economic writers on mainstream media think.
Although I am not opposed to higher dividend yields, I am also not opposed to the concept of waiting for better opportunities.
Recall that Microsoft bid $44.6 billion for Yahoo in 2008. Microsoft's offer was over $30 a share. The current price, after a huge rally is $21.
But No! Heaven forbid corporations "hoard cash". La Monica wants corporations to do something with their cash now.
The fact is the S&P just had a rally over 100%. Stocks are likely to correct (and hard). Buying companies at lofty prices is a fool's game, and I commend Apple for not doing it.
Nobody’s business, least of all not government’s business.
There are a number of ways to look at excess within a company. I worked for a company fifteen years ago that accumulated a vast amount of cash, for the purposes of eventually paying off the CEO who created the company (there was a $200 M stock-pay-off when he eventually choose to leave), and they had this desire to buy a minor competitor after they were supposed to win a government contract.
Some companies sit on cash for a long time....with desires to buy back their own stock. Some companies want to continually hint of a massive stock dividend, but keeping putting it off.
Cash is a blessing.
Given high inflation, yep!
In the corporate world there is definitely the concept of too much cash. You’re supposed to be using the cash to grow the business, if you’re sitting on a horde investors want to know why it isn’t going anywhere.
Government-created inflation will put a stop to these selfish “hoarders”
With todays government and climate, there is no good place to invest that kind of cash
Is there a difference between too much and more than you need?
To me, money is the vehicle to accomplish tasks.
If my earthly needs are taken care of ... and my desires are met, the only thing left is (to me) humanitarian aid.
Don't know how I'd deal with that.
I'm not going to go into Austrian economics here, but to elaborate on something that is not common knowledge, even among Christians.
The Torah's lending system without usury and with debt forgiveness together with the Jubilee system were the anti-trust laws of their day. The monetary goal of that system was to increase monetary velocity and maximize the marginal value of capital, putting every penny into the hands of those most likely to produce as much wealth from every penny as possible, thus maximizing total aggregate wealth.
By contrast, stored cash produces nothing. Beyond the maximum of that marginal value curve, the more one has, the less valuable each monetary unit becomes.
Together, these Judaic laws were designed to have every person producing at the maximum of their ability, which not only maximizes total wealth, it defrays the otherwise socialized risk of rebellion. Historically, the wealthy do not do well in popular rebellions. The Torah's system thus reduced the risk of political catastrophe, teaching the wealthy that what they have is not due to their own work but is a blessing from the Lord. IMHO, that "sealing" if you will, that protection from catastrophe, is why it the Jubilee was to commence on Yom Kippur.
When you do that and stil have a lot of $ left ,,, you must be good at what you do,,or ?
Stupid article. Corporations aren't individuals. The managers of a corporation have, legally, a fiduciary duty to the stockholders, to maximize the stockholders' return on their investment. Hoarding cash when that cash could be either invested profitably in growing the business, or returned to the shareholders as dividends, may very well (depending on the facts, of course) be a violation of that legal duty. Comparing this to an individual's decision to save his or her money instead of spending it is a stupid analogy.
The companies that hoard cash may be ensuring that they can weather a downturn in sales and still pay employees and benefits. They may be hoarding money so that when their competitors go under due to the inability to get their debt limits extended, they can go on a buying spree.
Companies “hoarding” cash have big savings accounts and emergency funds - and are more likely to stay in business. IE, the smart ones.
How about creating a atmosphere that encourages investment and risk taking, and doesn’t penalize success? How about one that doesn’t think first about how much tax to take from profits, but one that tries to celebrates and encourages profits???
Seriously, where do you think everything personal computer would have been without Microsoft and its drive for the billions. The millions and millions of jobs produced, cheap technology, advancement in technology, the huge consumer market for gadgets, etc. etc.
It's been quite the challenge.
Maybe I'm missing the point here, but isn't a cash position even more ridiculous when interest rates are at record lows and inflation is a serious threat?
Or you’ve run out of ideas on how to grow and the younger hungrier companies are going to eat your lunch.
Depends on what they mean by “cash”. Bills and coins? CD’s? Munis or T-bonds? Ledger entries?
Each has it’s own opportunity cost, risk, and valuation.
it’s s/b its.
I hate when I do that.