5 ms·

They could hold on to some, just in case there was a disturbance that caused cashflow to stop for a while.

by lordnacho 7y ago

swarnie_ 7y ago
This would result in the board being sacked for sitting on spare cash and not maximising shareholder return.
- chewz 7y ago
  Did Apple board got sacked?
  - zaroth 7y ago
    Apple has done more buybacks than anyone! And pays a dividend. > Since 2012, Apple has been buying back shares at the extraordinary rate of around $10 billion per quarter. Shareholders demanded it.
    - QuesnayJr 7y ago
      Apple has gigantic amounts of free cash flow, which is why they have $100 billion of cash on their balance sheet, despite their buybacks.
      - zaroth 7y ago
        Just back of the envelope, if every Fortune 100 had $100 billion in cash, that would be $10 trillion sitting in accounts as, what, a rainy day fund? Apple keeps a massive cash hoard in case they want to do a very large strategic acquisition. Airlines would be doing mergers not acquisitions. IMO it’s entirely appropriate that if a black swan even cripples an industry like air travel for a government to offer low-interest loans until they can start generating cash again. This is actually significantly more efficient than each company having to put billions of capital on the sidelines “just in case” their entire multi-billion dollar revenue stream goes to $0 for a few months. Capital efficiency is very important to overall economic growth.
        chewz 7y ago
        Money is returned to shareholders as buyback or dividend and shareholders can capitalize company in times of need (or when they see an opportunity for expansion or market takeover). This is more effective, quicker and cheaper way of capital alocation. It also eliminates political agenda.
        QuesnayJr 7y ago
        It's not on the sidelines. Like 0.001% of "cash" is actually cash. Apple holds like a third of its "cash" in equities. Airlines could do the same, or hold short-term debt, or pay down their own debt (which would free up capital for other uses). (They could also hold long-term debt in other companies, but I'm not sure where that shows up in the balance sheet.)
dforrestwilson 7y ago
For example paying down debt instead of loading up like American Airlines did.
roenxi 7y ago
Then the money would probably not be free cash. It would be held under some sort of actuarial title for dealing with risk. Maybe amortization? I'm not an accountant. If the business needs it to sustain operations then it probably isn't free cash flow.
- frgtpsswrdlame 7y ago
  The argument here is that they actually did need it to sustain operations since there's a significant chance they'll now receive a bailout. The whole point is they took cash they should have kept as a backup and then used it to boost share price instead.
  - roenxi 7y ago
    Which is a fair point but ... and I'm going to stop after this because I've made my point to the best of my ability ... but if they did that then the money wouldn't be called free cash flow because they've decided they need it for emergencies. They could be extremely risk tolerant and they'd still be sending all their FCF to shareholders. The amount would simply be smaller. I'm totally on board that bailouts are the worst and are inappropriate; but the statistic in the article is an accounting identity. They call the money they send to shareholders FCF, so obviously around 100% of FCF is going to be going to shareholders. If they think there is a potentially better use for the money than going to shareholders it isn't classed as FCF.
    - luckylion 7y ago
      RE "wouldn't be called free cash flow": it still would, because it'd be their own personal decision to save it for a rainy day. When they'd have to save some amount for a rainy day due to regulations, that money wouldn't be considered free cash flow. FCF is, from what I understand, not automatically equal to what you send to shareholders, but sending it to shareholders is an option. Another option would be investing it, or putting it in your bank accounts, as Apple, Google, Microsoft etc are doing. The airlines simply made a business decision and bet their company on never needing to sustain a drop in traffic, and they've lost the bet. If you take whatever you have left after paying for rent, food and insurance, that's your FCF. You can now decide whether you want to save some or all of that, spend it on a new bed, or blow it on coke. The airlines chose what made them/their shareholders happy in the short term and potentially very sad in the long term.

They could hold on to some, just in case there was a disturbance that caused cashflow to stop for a while.

swarnie_ 7y ago

This would result in the board being sacked for sitting on spare cash and not maximising shareholder return.

chewz 7y ago
Did Apple board got sacked?
- zaroth 7y ago
  Apple has done more buybacks than anyone! And pays a dividend. > Since 2012, Apple has been buying back shares at the extraordinary rate of around $10 billion per quarter. Shareholders demanded it.
  - QuesnayJr 7y ago
    Apple has gigantic amounts of free cash flow, which is why they have $100 billion of cash on their balance sheet, despite their buybacks.
    - zaroth 7y ago
      Just back of the envelope, if every Fortune 100 had $100 billion in cash, that would be $10 trillion sitting in accounts as, what, a rainy day fund? Apple keeps a massive cash hoard in case they want to do a very large strategic acquisition. Airlines would be doing mergers not acquisitions. IMO it’s entirely appropriate that if a black swan even cripples an industry like air travel for a government to offer low-interest loans until they can start generating cash again. This is actually significantly more efficient than each company having to put billions of capital on the sidelines “just in case” their entire multi-billion dollar revenue stream goes to $0 for a few months. Capital efficiency is very important to overall economic growth.
      - chewz 7y ago
        Money is returned to shareholders as buyback or dividend and shareholders can capitalize company in times of need (or when they see an opportunity for expansion or market takeover). This is more effective, quicker and cheaper way of capital alocation. It also eliminates political agenda.
      - QuesnayJr 7y ago
        It's not on the sidelines. Like 0.001% of "cash" is actually cash. Apple holds like a third of its "cash" in equities. Airlines could do the same, or hold short-term debt, or pay down their own debt (which would free up capital for other uses). (They could also hold long-term debt in other companies, but I'm not sure where that shows up in the balance sheet.)

dforrestwilson 7y ago

For example paying down debt instead of loading up like American Airlines did.

roenxi 7y ago

Then the money would probably not be free cash. It would be held under some sort of actuarial title for dealing with risk. Maybe amortization? I'm not an accountant. If the business needs it to sustain operations then it probably isn't free cash flow.

frgtpsswrdlame 7y ago
The argument here is that they actually did need it to sustain operations since there's a significant chance they'll now receive a bailout. The whole point is they took cash they should have kept as a backup and then used it to boost share price instead.
- roenxi 7y ago
  Which is a fair point but ... and I'm going to stop after this because I've made my point to the best of my ability ... but if they did that then the money wouldn't be called free cash flow because they've decided they need it for emergencies. They could be extremely risk tolerant and they'd still be sending all their FCF to shareholders. The amount would simply be smaller. I'm totally on board that bailouts are the worst and are inappropriate; but the statistic in the article is an accounting identity. They call the money they send to shareholders FCF, so obviously around 100% of FCF is going to be going to shareholders. If they think there is a potentially better use for the money than going to shareholders it isn't classed as FCF.
  - luckylion 7y ago
    RE "wouldn't be called free cash flow": it still would, because it'd be their own personal decision to save it for a rainy day. When they'd have to save some amount for a rainy day due to regulations, that money wouldn't be considered free cash flow. FCF is, from what I understand, not automatically equal to what you send to shareholders, but sending it to shareholders is an option. Another option would be investing it, or putting it in your bank accounts, as Apple, Google, Microsoft etc are doing. The airlines simply made a business decision and bet their company on never needing to sustain a drop in traffic, and they've lost the bet. If you take whatever you have left after paying for rent, food and insurance, that's your FCF. You can now decide whether you want to save some or all of that, spend it on a new bed, or blow it on coke. The airlines chose what made them/their shareholders happy in the short term and potentially very sad in the long term.