Ever wonder about the advantages and disadvantages of companies carrying a lot of cash on their balance sheets?
Companies with piles of cash have a lot of flexibility to act quickly when various opportunities arise. But many successful companies choose to manage down their cash balances to nearly zero. They use the money to buy back shares and acquire other companies, among other things. If they suddenly need some cash, they draw on lines of credit available to them.
You might be surprised at just how much cash some companies have on hand. As of Sept. 30, 2006, Microsoft
Different companies manage their cash in different ways, with varying degrees of success. It's not necessarily bad for a company to have a lot or a little cash, but if it has taken on a lot of debt, it had better be able to make those interest payments. And if a company has piles of cash, it had better be putting them to some effective use -- otherwise, as some have argued in the case of Microsoft, it may make sense to use some of the pile to buy back shares (if they're valued attractively) or issue a cash dividend to shareholders.
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