Quote:
Originally Posted by Phil21
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.
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 |
I'm not going to disagree too hard with anything you said there (I have some minor issues with little things...but they're just little things)
I was speaking in terms of the overall credit crisis (which is what brought on this thread)
In that scenario we were talking about a situation that would have taken years to play out on it's own, and as has been discussed here, alot of businesses that are run well would have paid a heavy price through really no fault of their own.
Alot of businesses run their operations on credit and that is standard operating practice for their industry.....they would put themselves at a competitive disadvantage doing otherwise.
Of course keeping a few weeks or months of reserves on hand is wise and I can only assume most well run companies do this...but as I said earlier, the frozen credit markets would have taken years to thaw out on their own....and alot of innocent, hard working people would have been casualties of a mortgage crisis they had nothing to do with.
BTW, Microsoft doesn't keep large reserves for times like this....they keep large reserves because a big part of their business model is acquiring start up companies and they need the cash on hand for when the next facebook or myspace or youtube comes down the pipe.
That's not the case with your local grocer or car dealer or beer distributor.
