Corporate Cash Myth
We keep hearing that corporations have amassed a war chest on the order of $2 trillion in the US.
However, what is not said is that the total debt these corporations have is around $7.3 trillion.
In short, despite huge amounts of cash on their balance sheets, America's largest companies are as broke as the rest of the country.
Broke? Why because their total outstanding debt is higher than their cash on hand? That doesn't make sense.
Corporations borrow against their assets, income streams and going concern market values. They are ok as long as they have an income cushion to service and reduce their debts over time and / or they are able to grow their asset / market value over time.
According to that chart the ratio of cash to debt has remained constant at around 27%. So it doesn't even address the premise of the article. The real issue isn't how much cash corporations have relative to their debt, but their debt relative to their current incomes, asset values and ability to grow over time. i.e. leverage ratios and sensitivity to changes in interest rates.
I'm not discussing whether the corporate cash myth is true or not, I'm just saying that the cash vs. debt ratio proves little on it's own so the article doesn't really inform the discussion.
Fair points but this article was only to 'respond' to the idea that corps are sitting on $2T doing nothing with it.
Relinquis is right. To add brevity to his post: You're retarded.
Is a multi-millionaire broke because he has 9 of his 10 million tied up in different LT investments, $900,000 in other various forms PP&E (cars, a jet, etc) and $100,000 cash in his bank account while having an outstanding loan on a house for $2mil?
No.
What the fuck?
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