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"They can do almost anything they want to within reason and not worry about the financial consequences." No, they need to make the soundest possible investment
by CamTin 9y ago
"They can do almost anything they want to within reason and not worry about the financial consequences."
No, they need to make the soundest possible investments with that money. Lots of free cash flow is not license to do "anything they want to within reason," especially for a publicly-traded company (sure, if you're talking about a private partnership and all the partners agree, go nuts, I guess). If they don't actually need it to run the business making the profits, they should return it to shareholders since, you know, that's whose money it is.
- dingaling 9y agoBut there's no point paying dividends to shareholders who aren't demanding them. Why would a company 'throw away' surplus cash to passive uncomplaining shareholders instead of intercepting it upstream and ploughing it back into tax-reducing activities? Like burning cash on R&D that provides opportunities for pivoting in the future. Now that is prudent and sound. Eventually shareholders might gain enough voting power to demand dividends but there's no point in piling-up taxable cash until that happens.