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Can you ELI5 for someone who doesn't know corporate finance why constant cash surpluses would be unfavorable for them?

• dagmx 2y ago
  Honestly, I do not understand it myself either. I just understand the mechanisms behind it but I do not understand why one would logically want less money.
  • positr0n 2y ago
    If you owned a business that had a bunch of cash sitting around with no useful growth opportunities to invest it in you wouldn't keep it in your business's bank account, you'd pay yourself and spend the money on a vacation or invest it elsewhere. Same with a giant corporation. Its shareholders want to be invested in a business. Owning part of a business that is 10% just a giant cash pile isn't necessarily appealing. The corporation should return the cash to its investors so they can decide what they want to do with it.
    • dagmx 2y ago
      That’s fair. I’d probably invest it in my employees though personally rather than return to investors, but I follow.
• verdverm 2y ago
  Sitting on cash means you aren't putting it to use. 1. invest in the business to increase long-term profits 2. give out dividends to investors 3. buy back stocks so future dividends are more valuable Cash flow (from revenues) is relatively predictable, so you can count on more coming in to cover future expenses. Business can also issue bonds (loans) should cash be in shortfall or they want to invest in a factory or similar.