Hoards of Cash

Companies have been retaining unprecedented amounts of cash on their balance sheets, calling it "strategic" cash to distinguish it from the "operating" cash that is needed to run the business.

Arguments for Strategic Cash:

Save Taxes. Much of the strategic cash is typically held outside the United States. it avoids the incremental tax that will be levied due to the territorial system of U.S. taxation. Barring a tax holiday, this cash is effectively "trapped" offshore.

Facilitate Acquisitions. Strategic cash provides more flexibility concerning the timing(respond with alacrity to opportunities) and pricing(vagaries of the financial markets) of potential acquisitions


Facilitate Investments: Finance long-term reinvestment programs in the business—which is especially valuable to companies in capital-intensive industries (e.g., energy or telecom) or research-intensive industries (e.g., high technology or pharmaceutical) that are investing in projects with uncertain long-range payoffs.

Greater Responsiveness to Future Events: Protection against downsides (such as disruptive technologies, economic recessions, and market turmoil) and also offers the opportunity to capture upsides. For example, a market downturn is a great time to repurchase stock or to introduce a new marketing campaign against weakened competitors


Arguments Against Strategic Cash:
Undisciplined Spending. Unless a company has a strong track record as a superior acquirer or investor, shareholders may prefer the "bird in the hand" of a dividend or share repurchase and fear that any excess cash may result in unfocused strategies or uneconomic spending.

Low Returns: cash is invested in high quality short-term securities; this ensures safety and liquidity, but produces a meager return on investment and does not achieve the company's cost of capital.



Excess cash on balance sheets is available for loans to other businesses through banks and other financial institutions. Hence, Politicians claiming that retaining cash balances is hurting the global economy—even characterizing the practice as unpatriotic is baseless and misleading

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