4 ms·

Something I don't understand: why would a company ever return cash if they don't have to? Isn't it better to have it than not?

ASinclair 10y ago
Well they do have to return the cash if the shareholders demand it since the company doesn't own itself, the shareholders own it.
tuna-piano 10y ago
Think of the "company" as fictitious. All the company is, is the combined assets of shareholders. So the shareholders decide if they would rather have the cash in the corporate entity or in their own pockets.
Dwolb 10y ago
There are several reasons. A couple could be shareholders believe they have better uses for the money elsewhere and to keep management disciplined (i.e. too much cash makes management reckless). Think about if you were a partial owner of two businesses. One business has a lot of cash but isn't growing. The other business is growing but doesn't have a lot of cash. As a partial owner, what would you do?
sharemywin 10y ago
Because it used to be that companies that don't return dividends back to share holders weren't worth much. What's interesting is microsoft's sales in 2005 and 2015 are both 12B. The other companies at least have none flat revenue numbers.
roymurdock 10y ago
If a company has excess cash, and few good projects (NPV>0), returning money to stockholders (dividends or stock repurchases) is GOOD. If a company does not have excess cash, and/or has several good projects (NPV>0), returning money to stockholders (dividends or stock repurchases) is BAD. Read more here: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/lectures/dividend.html http://pages.stern.nyu.edu/~adamodar/New_Home_Page/lectures/...
adamlett 10y ago
Shareholders get nervous when companies hold too much cash, because they fear that management will blow it on stupid acquisitions. This ultimately hurts the value of the company. Management is usually granted stock and/or stock options, which aligns their interest with the other stock owners.

ASinclair 10y ago

Well they do have to return the cash if the shareholders demand it since the company doesn't own itself, the shareholders own it.

tuna-piano 10y ago

Think of the "company" as fictitious. All the company is, is the combined assets of shareholders. So the shareholders decide if they would rather have the cash in the corporate entity or in their own pockets.

Dwolb 10y ago

There are several reasons. A couple could be shareholders believe they have better uses for the money elsewhere and to keep management disciplined (i.e. too much cash makes management reckless). Think about if you were a partial owner of two businesses. One business has a lot of cash but isn't growing. The other business is growing but doesn't have a lot of cash. As a partial owner, what would you do?

sharemywin 10y ago

Because it used to be that companies that don't return dividends back to share holders weren't worth much. What's interesting is microsoft's sales in 2005 and 2015 are both 12B. The other companies at least have none flat revenue numbers.

roymurdock 10y ago

If a company has excess cash, and few good projects (NPV>0), returning money to stockholders (dividends or stock repurchases) is GOOD. If a company does not have excess cash, and/or has several good projects (NPV>0), returning money to stockholders (dividends or stock repurchases) is BAD. Read more here: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/lectures/dividend.html http://pages.stern.nyu.edu/~adamodar/New_Home_Page/lectures/...

adamlett 10y ago

Shareholders get nervous when companies hold too much cash, because they fear that management will blow it on stupid acquisitions. This ultimately hurts the value of the company. Management is usually granted stock and/or stock options, which aligns their interest with the other stock owners.