Cash Flow Statements and Cash Hoards

“Cash Flow Statements and Cash Hoards” Please respond to the following:

Apple Inc. and Microsoft Corp. are identified as companies that have accumulated substantial sums of cash. Microsoft and Apple increased dividend payouts and acquired treasury stock to return some of the excess cash to shareholders. Use the Internet to identify one (1) additional large company which is currently accumulating a cash hoard. Next, evaluate how the company identified in your research can use the cash flow statement to project efficient uses of the cash hoard it has accumulated.

Suggest at least two (2) advantages and two (2) disadvantages of companies accumulating cash hoards. Provide a rationale for your suggestion.

Please watch this Youtube video on Cash Flow Statements to guide your understanding of our week discussion topic:

https://www.youtube.com/watch?v=M7xhaJVx-WE

Let me know if you have questions

Please read this article on: FASB Revisits the Cash Flow Statement:

http://ww2.cfo.com/cash-flow/2014/09/fasb-revisits-cash-flow-statement/

Please let me know if you have questions>

Response to 2 classmates:

Classmate 1

Apple Inc. and Microsoft Corp. are identified as companies that have accumulated substantial sums of cash. Microsoft and Apple increased dividend payouts and acquired treasury stock to return some of the excess cash to shareholders. Use the Internet and/or Strayer Learning Resource Center to identify one (1) additional large company which is currently accumulating a cash hoard. Next, evaluate how the company identified in your research can use the cash flow statement to project efficient uses of the cash hoard it has accumulated.

An additional company which is earning a huge amount of cash flow is Alphabet. The company is a collection of companies which include Google, Maps, YouTube, Chrome and Android. According to Deagon (2016), the company ended the second quarter of 2016 with $ 78 billion just being Microsoft. There are three sections in the cash flow statement of Alphabet.inc which are the operating, financing and investing cash flow statement. One of the best way to project the efficient way to use the cash is via the investment area of the annual financial statement. 

The cash flow from the investment activities can help the company to evaluate their investment on their acquisitions of any companies. The last part which is the cash flow from the financing activities is one of the most important one since it depicts the companies (IPO) or initial public offering to see whether the firm is earning attention from investors who buy their stocks. 

The company can use the cash flow statement to also measure their ability to reinvest their money after accounting for all capital expenditures. Estimating the free cash flow after deducting the building and properties expenses is important to efficiently use their cash.     

Suggest at least two (2) advantages and two (2) disadvantages of companies accumulating cash hoards. Provide a rationale for your suggestions

Company can accumulate cash for multiple purposes one advantage of cash accumulation is the idea of using such monetary value in case of an economic contraction for instance, companies such as Apple and Alphabet. Inc are more likely to survive compared to other small firms in competition with them. Cash reserve is also good for Alphabet.inc since they can decide to pay their company dividend to their investors. The corporation can invest their extra money in purchasing some stock and bonds and other companies especially in the technology industry where there are numerous opportunities.  

On the other hand, having more cash in the company bank is not good for any company in the U.S since for instance Apple can create more value via investing their money in other projects. There is also a lack of growth when a company still holding cashes without investing anywhere. Also, holding cashes shows a bad impression to the investors if the company have a potential opportunity cost to invest their money in other stocks.

Classmate 2

Apple Inc. and Microsoft Corp. are identified as companies that have accumulated substantial sums of cash. Microsoft and Apple increased dividend payouts and acquired treasury stock to return some of the excess cash to shareholders. Use the Internet and/or Strayer Learning Resource Center to identify one (1) additional large company which is currently accumulating a cash hoard. Next, evaluate how the company identified in your research can use the cash flow statement to project efficient uses of the cash hoard it has accumulated.

Google Inc. is a large company which is accumulating cash hoard. Google is serving large number of internet customers all over the world and providing them web based products and services. Increasing number of customers and large client following has Enable Company to earn large amount of revenue. Increasing cash inflow in the company is causing cash hoard. Google is now facing issue in taking business decisions related to the spending of expanding cash of the company. The internet leader, Google Inc. is now sitting on the cash of more than $59 billion along with other short term investments and the long term holdings of $2 million (Gacinga, 2014). Google success is now becoming an issue for it as more successful company business cause large number of cash and fat profit margin of the company which causes cash hoarding. Google need to fund its excess of cash in appropriate way in order to get rid from cash hoarding negative impacts and to achieve enhancing opportunities.

To project the efficient use of cash hoard, Google Inc. can use its cash flow statement to assess the incoming and outgoing flow of cash to make important business decisions which would provide future opportunities. Google can look at its cash flow statement to see the heads of cash inflow and out flow and make decision to spend its accumulated cash in different aspects. Firstly, Google can invest its accumulated cash in strategic alliances such as mergers and acquisitions. The acquisitions would provide benefits to the firm and increase company productivity and future return on investment. But the mergers and acquisitions should be valuable for the firm which can generate fair amount of value for shareholders. Another option for Google Inc. is to use its excess of cash is to payout dividends or instituting share buyback. The cash flow statement will provide the information about the current and previous years cash inflow and outflow from buying and selling of shares and paying of dividends and would tell the additional need for dividends payments and shares buying and selling of shares. 

Suggest at least two (2) advantages and two (2) disadvantages of companies accumulating cash hoards. Provide a rationale for your suggestion

Advantages

Through cash hoard, the company would have certain amount of cash in its hand that would enable the company to pay its short term debts quite easily. It will provide ease the firm to cater its short term needs. Company always need to have some short term cash in its hand in order to fulfill its need and cash hoarding will provide the opportunity to fulfill company short term needs. 

Company cash hoard is ultimately a sign of its achievement. The company can use its cash any time when its require. 

Disadvantages 

Cash hoarding decrease the value of stock. When shareholders see that the value of stock is held by the cash, they give less value to the company stocks and become restless and the company stocks yield low return.

Cash hoarding would not be very beneficial as cash hoarding will freeze the money of the company. It will increase the opportunity cost of the firm. Instead of hoarding, if the company will use to invest it in some productive projects, it would provide additional benefits to the company and will reduce the opportunity cost of the firm. Cash hoarding means less investment which ultimately leads the company towards low profitability in future.