# Corporations that have large amounts of cash, why don't they reduce their debts? **URL:** \ **Category:** Factual Questions\ **Created:** [April 24, 2013, 7:55pm UTC](https://boards.straightdope.com/t/corporations-that-have-large-amounts-of-cash-why-dont-they-reduce-their-debts/656618 "2013-04-24T19:55:20Z")\ **Posts on this page:** 10\ **Page:** 3
**Author:** ![Dangerosa](https://avatars.discourse-cdn.com/v4/letter/d/22d042/32.png) [@Dangerosa](https://boards.straightdope.com/u/Dangerosa)\ **Post date:** [April 28, 2013, 1:27pm UTC](https://boards.straightdope.com/t/corporations-that-have-large-amounts-of-cash-why-dont-they-reduce-their-debts/656618/41 "2013-04-28T13:27:59Z")
> [@Baron\_Greenback](#): > > Gillette? Unless they’ve sold that holding of course. Proctor and Gamble bought them in 2005. BH has been reducing their holdings since. ---
**Author:** ![Baron\_Greenback](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/baron_greenback/32/48_2.png) [@Baron\_Greenback](https://boards.straightdope.com/u/Baron_Greenback)\ **Post date:** [April 28, 2013, 1:49pm UTC](https://boards.straightdope.com/t/corporations-that-have-large-amounts-of-cash-why-dont-they-reduce-their-debts/656618/42 "2013-04-28T13:49:24Z")
> [@Dangerosa](#): > > Proctor and Gamble bought them in 2005. BH has been reducing their holdings since. It was a good investment though! 🙂 I’ll just be over here updating my portfolio… ---
**Author:** ![Dewey\_Finn](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dewey_finn/32/4222_2.png) [@Dewey\_Finn](https://boards.straightdope.com/u/Dewey_Finn)\ **Post date:** [April 28, 2013, 2:14pm UTC](https://boards.straightdope.com/t/corporations-that-have-large-amounts-of-cash-why-dont-they-reduce-their-debts/656618/43 "2013-04-28T14:14:11Z")
And in any case, I believe Berkshire Hathaway makes most of its money from its insurance holdings. (I’ll second the suggestion of reading Buffett’s annual letter to the shareholders. I don’t own shares, but it’s very instructive nonetheless. It’s where I learned about the investment potential of insurance float.) ---
**Author:** ![Dangerosa](https://avatars.discourse-cdn.com/v4/letter/d/22d042/32.png) [@Dangerosa](https://boards.straightdope.com/u/Dangerosa)\ **Post date:** [April 28, 2013, 3:53pm UTC](https://boards.straightdope.com/t/corporations-that-have-large-amounts-of-cash-why-dont-they-reduce-their-debts/656618/44 "2013-04-28T15:53:14Z")
> [@Dewey\_Finn](#): > > And in any case, I believe Berkshire Hathaway makes most of its money from its insurance holdings. (I’ll second the suggestion of reading Buffett’s annual letter to the shareholders. I don’t own shares, but it’s very instructive nonetheless. It’s where I learned about the investment potential of insurance float.) The insurance holdings generate cash, the cash is used to invest. They’ve been very pleased by the gain in value - and its become a more important portion of the business, but the purpose of the insurance business is the cash. I’m spending next Saturday in the auditorium at the annual meeting listening to Warren and Charlie speak. I only have a few cheap B shares - and really because we want to go to Omaha in May (doesn’t everyone). ---
**Author:** ![Baron\_Greenback](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/baron_greenback/32/48_2.png) [@Baron\_Greenback](https://boards.straightdope.com/u/Baron_Greenback)\ **Post date:** [April 28, 2013, 5:15pm UTC](https://boards.straightdope.com/t/corporations-that-have-large-amounts-of-cash-why-dont-they-reduce-their-debts/656618/45 "2013-04-28T17:15:02Z")
> [@Dangerosa](#): > > (Warning, this is the unsexiest corporate website in existence) I love that they spend the hosting cost, plus about $100 a year for whichever person adds the annual link. From their phone. ---
**Author:** ![Try2B\_Comprehensive](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/try2b_comprehensive/32/65_2.png) [@Try2B\_Comprehensive](https://boards.straightdope.com/u/Try2B_Comprehensive)\ **Post date:** [April 28, 2013, 7:35pm UTC](https://boards.straightdope.com/t/corporations-that-have-large-amounts-of-cash-why-dont-they-reduce-their-debts/656618/46 "2013-04-28T19:35:11Z")
Long story short, in the case of AAPL (other companies may have different motivations), while they have the cash on hand to fully cover their stock buyback and dividend increases, 100% of the reason they are borrowing the money to pay for that instead is for tax reasons. If I can find the article where I read that, I’ll post it later. ---
**Author:** ![bchris964](https://avatars.discourse-cdn.com/v4/letter/b/f14d63/32.png) [@bchris964](https://boards.straightdope.com/u/bchris964)\ **Post date:** [April 29, 2013, 7:34am UTC](https://boards.straightdope.com/t/corporations-that-have-large-amounts-of-cash-why-dont-they-reduce-their-debts/656618/47 "2013-04-29T07:34:11Z")
> [@Hermitian](#): > > Why do corporations that have large amounts of cash also have signficantly sized debts? > > For example, [money.cnn.com](http://money.cnn.com) says that of 4th quarter 2012 Apple has 39.8B in cash and short term investments while it has 46.9B in liabilities. > > Why doesn’t it use some of it’s cash to pay off its liabilities? I can’t imagine that the cash or short term investments are making a better return than their debt payments, can they? Hello Hermitian, there are several reasons, for which, corporations can’t pay the liabilities by using cash or through sale of capital, etc. The main reason is that every organization try to pay the cash to debtors in systematic way and pay only the committed amount against the liabilities and use remaining cash to perform several business tasks to handle the business affairs. ---
**Author:** ![dracoi](https://avatars.discourse-cdn.com/v4/letter/d/90db22/32.png) [@dracoi](https://boards.straightdope.com/u/dracoi)\ **Post date:** [April 29, 2013, 6:57pm UTC](https://boards.straightdope.com/t/corporations-that-have-large-amounts-of-cash-why-dont-they-reduce-their-debts/656618/48 "2013-04-29T18:57:03Z")
> [@deltasigma](#): > > But AAPL is, for the most part a special case. The main reason for the behavior referenced by the OP is that no one trusts the financial system any more. I can’t believe no one has gotten this out of 35 posts. It’s only been 6 years since our near-financial-death experience folks. It’s not that long ago that banks were afraid to loan even to other banks - even overnight for Christ’s sake. For a while in 2008, the financial system ceased to function in any meaningful way. Your ATM still worked, there were no bank runs. But at higher levels of the system, it was utter chaos. Well, I did mention it in the first reply to the thread. 🙂 ---
**Author:** ![bump](https://avatars.discourse-cdn.com/v4/letter/b/7c8e57/32.png) [@bump](https://boards.straightdope.com/u/bump)\ **Post date:** [April 29, 2013, 7:25pm UTC](https://boards.straightdope.com/t/corporations-that-have-large-amounts-of-cash-why-dont-they-reduce-their-debts/656618/49 "2013-04-29T19:25:23Z")
> [@Dewey\_Finn](#): > > IANAL or finance expert, but I don’t believe that’s how stock works. He’s confusing “not in the same part of the balance sheet as cash” as being equivalent to debt, which isn’t true. Most balance sheets have 3 parts - assets, liabilities and stockholders’ equity, and stock is obviously(?) part of stockholders’ equity, while cash is considered an asset, and debt is generally considered a liability. No debt aside, why would Apple have such a huge cash reserve? That sounds kind of strange to me- why wouldn’t they invest it in more long-term things than cash and cash equivalents? ---
**Author:** ![Try2B\_Comprehensive](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/try2b_comprehensive/32/65_2.png) [@Try2B\_Comprehensive](https://boards.straightdope.com/u/Try2B_Comprehensive)\ **Post date:** [May 3, 2013, 3:27am UTC](https://boards.straightdope.com/t/corporations-that-have-large-amounts-of-cash-why-dont-they-reduce-their-debts/656618/50 "2013-05-03T03:27:28Z")
From [here](http://www.bloomberg.com/news/2013-05-02/apple-avoids-9-2-billion-in-taxes-with-debt-deal.html?cmpid=msnmoney): > [@](#): > > Apple Inc. (AAPL) avoided as much as $9.2 billion in taxes by financing part of a $55 billion stock buyback with debt rather than offshore cash that would have been billed by the U.S. government, Moody’s Investment Services estimates. > [@](#): > > If the funds had come from Apple’s offshore cash pile of about $100 billion, the Cupertino, California-based iPhone maker would have had to pay a 35 percent tax to repatriate the money, Granovsky said. That means Apple avoided about $9.2 billion in taxes. And since interest payments are tax-deductible, that’s another $100 million a year So you see, here we have an example where borrowing turns a profit. [Previous page](https://boards.straightdope.com/t/corporations-that-have-large-amounts-of-cash-why-dont-they-reduce-their-debts/656618.md?page=2)