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Originally Posted by Snake Doctor
Again you're trying to project your own personal, small business, and the way it's run, onto multi-national corporations and beyond.
The companies with billions in profit are publicly owned, that means the profits are paid out to the shareholders OR invested in expansion of the company.
To use your all caps example...PROFIT means LAST YEAR'S bills are PAID. CASH FLOW is for NEXT YEAR'S bills and payroll.
You seem to think that a company was wrong for not keeping several months or even years of operating expenses as a cash reserve....but in a low interest rate environment (which we've been in for quite some time) that would be dereliction of their fiduciary duty to their shareholders.
If they didn't have every dime of available capital out there working to generate a return they'd have been fired. (and rightly so)
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Eh.. many public companies can and do have policies of having very large cash reserves, many for this exact situation. It's simply how they decide to factor in risk. I tend to be conservative, and think that having 3-6 months of operating cash on hand in liquid assets is not out of line at all, and it is irresponsible not to. Others disagree, and they'll certainly make slightly more profits during the good times - but when the bad times come they cry that they can't pay their bills. Things that make you go hmmm. Microsoft comes to mind of a company that has huge cash reserves, and I know others do as well.
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Your point of view is that if there's a sudden famine, that it's the average person's fault they're starving because they didn't have a year's worth of groceries stored in their basement....even though every week for their entire lives there was food available at the grocery store.
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Yes.. I actually do think it is their fault. Maybe not in the extremes you are saying here, but you would be surprised at how many people don't keep a few weeks of basic necessities in the cupboards. If you can't exist for 30 days or so on food you have in your house, you're doing something horribly wrong and I don't feel to bad for you if you starve when $disaster hits. Everyone should be aiming to be as self sufficient as possible, even in unexpected times. This leaves public resources for those who truly cannot fend for themselves, and do need help. See Katrina for a perfect example of zero personal accountability.
More pertinent to this discussion though, would be personal savings. If you don't have 3-6 months of living expenses socked away, again, you're doing it wrong and you *deserve* to be on the street when the easy credit dries up or your cushy job goes away. There are exceptions, but if you're eating out, buying a new TV, etc. like so many people do without savings, I have no sympathy for you.
There is a reason reserves are kept. I don't think anyone is advocating anything absolutely nuts where it kills the business, but we have absolutely swung the pendulum in the opposite direction too far (where it was considered normal for companies to have NEGATIVE reserves on hand! wtf!).
Speaking from experience, growing a capital intensive company is a challenge to do responsibly. You very much need to balance risk (debt) with the possible downside. If you go too far in either direction (e.g. take on no debt, or too much) you are very likely to fail either way.
Just my two cents
-Phil