Corporate Cash And Corporate Balance Sheets

In the US, there is more cash on corporate balance sheets than ever before. There is more cash inside of banks than ever before. But, if you are a student of accounting you know that if one side of the balance sheet increases, the other side has to increase too.

Personally, if we are interested in seeing that cash flow off of corporate balance sheets and into the hands of people, we ought to make taxes on dividends 0%.  We should think about taxing buybacks, since they don’t enhance anyone’s real return.  Dropping corporate taxes to 15% would also be a good idea. The shareholders are assuming risk to hold the stock. They should be rewarded via appreciation and dividends, not buybacks.

Here is some data on corporate activity.

In an up market, shareholders equity goes up in value offsetting and balancing the increase in cash. In the case of

US Debt Outstanding Domestic Nonfinancial Sectors - Business Corporate (Nonfarm) Sector Chart
US Information Net Corporate Dividends Chart
^DRB Chart

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Cash Policies for Startups

I heard a rumor on a call the other day that some startup companies are starting to keep balance sheet cash in higher yield instruments such as corporate debt. This is apparently becoming trendy again as private companies do $25m+ rounds and end up with a bunch of cash on their balance sheets.

This scares the shit out of me. As a high growth startup, I think you should be focusing on maximum protection for your cash, even if the yield is 0%.

In 2001, we had several companies lose over $1m (including one that was public that lost $7.5m) in corporate bonds, which were being pushed on startups by the various banks as “safe.” We also had at least one case of a mess in the 2008-2009 time period with someone with one of those fancy action rate securities that froze cash for a while (they eventually got it.)

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