Apple Inc., Microsoft Corp., Berkshire Hathaway, and Facebook have all been identified as companies that have...

Apple Inc., Microsoft Corp., Berkshire Hathaway, and Facebook have all been identified as companies that have accumulated substantial sums of cash. For this discussion:

Select one of these companies and review their latest Balance Sheet and Statement of Cash Flows.
Suggest at least two (2) advantages and two (2) disadvantages of companies accumulating cash hoards.
Provide a rationale for your suggestion.

Solutions

Expert Solution

Toyota

The company “Toyota”, automobile manufacturers is consider among the top companies that have accumulated a lot of money in the hoarding of a growing cash reserve.

We can highlight following two advantages of companies accumulating cash hoards as under,

(1) Cash hoarding is reflecting the company with strong business performance in the market. It means that the company strategy has been working as planned and the product offered has acquired excellent demand by consumers.

(2) Second advantage is that it cash hoard it can be used as a buffer against bad times. In situation of the poor economic time or an acquisition didn’t go the way it was planned, the company who has buffer stock of cash or cash hoarding will have sufficient money to recover or maintain while planning new strategies.

We can highlight following two disadvantages of companies accumulating cash hoards as under,

(1) The main disadvantages of Cash Hoarding is negative impact on ‘expected share price’ performance as investors claim companies were defined as ‘cash hoarders’ that had over 15% of their ‘total assets’ in cash and cash equivalents on average over the last 10 years. Such type of companies unable to deliver a higher rate of return by deploying excess cash– must return cash to shareholders and not squander it

(2) The second disadvantage Cash Hoarding are a Dearth of attractive investment opportunities. If the company is not attracted to invest in another company, equipment or new system, it will be holding the cash and the company will be using the same old equipment. The company might be afraid of expanding

ekkarill92 answered 1 year ago

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