# What Do Corporations Do With All That Money?
**URL:** https://boards.straightdope.com/t/what-do-corporations-do-with-all-that-money/819112
**Category:** Great Debates
**Created:** [August 5, 2018, 2:52am UTC](https://boards.straightdope.com/t/what-do-corporations-do-with-all-that-money/819112 "2018-08-05T02:52:50Z")
**Posts on this page:** 20
**Page:** 1
### Author:  [@Jim\_B](https://boards.straightdope.com/u/Jim_B)
#### Post date: [August 5, 2018, 2:52am UTC](https://boards.straightdope.com/t/what-do-corporations-do-with-all-that-money/819112/1 "2018-08-05T02:52:50Z")
Partly inspired the recent [news](https://www.nbcnews.com/tech/tech-news/apple-worth-1-trillion-here-s-what-much-money-could-n897511) story that Apple is now worth a trillion dollars, I have to ask just one question.
What on earth do they do with all that money?
I am sure the spendable part of the fortune is only in the billions. But that changes little. There is still no luxury, no home, no island even for that matter that costs _ **that** _ much.
So what does the CEO, the owner, basically whoever profits the most from this fortune, even do with so much money? I know Bill Gates once donated most of his fortune to charity. But from what I have heard, most corporations rarely even do that.
And I deliberately put this in Great Debates, because I assume it will probably provoke a big one.
Thank you in advance for all your kind replies:).
:):)đ
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### Author:  [@Mijin](https://boards.straightdope.com/u/Mijin)
#### Post date: [August 5, 2018, 3:37am UTC](https://boards.straightdope.com/t/what-do-corporations-do-with-all-that-money/819112/2 "2018-08-05T03:37:51Z")
nm
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### Author:  [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)
#### Post date: [August 5, 2018, 3:40am UTC](https://boards.straightdope.com/t/what-do-corporations-do-with-all-that-money/819112/3 "2018-08-05T03:40:42Z")
> [@Jim\_B](#):
>
> So what does the CEO, the owner, basically whoever profits the most from this fortune, even do with so much money? I know Bill Gates once donated most of his fortune to charity. But from what I have heard, most corporations rarely even do that.
The shares of Apple stock are collectively worth a trillion dollars. So the CEO does not own Apple. No individual owns Apple. Apple is owned collectively by the people who own its five billion shares, which are valued around two hundred dollars each.
So some of Appleâs owners might not have enough to buy an Apple computer.
The largest share holder is Arthur Levinson, who reportedly owns 1,160,000 shares which have a current value of around $240,000,000.
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### Author:  [@Wesley\_Clark](https://boards.straightdope.com/u/Wesley_Clark)
#### Post date: [August 5, 2018, 3:41am UTC](https://boards.straightdope.com/t/what-do-corporations-do-with-all-that-money/819112/4 "2018-08-05T03:41:37Z")
I once read that a lot of those corporate profits are among tech companies that are waiting for a new technology revolution, and they are afraid to invest until that technology comes along.
No idea if that is a true hypothesis or not.
EDIT: Here is the article.
> **[Why Are Corporations Hoarding Trillions? (Published 2016)](https://www.nytimes.com/2016/01/24/magazine/why-are-corporations-hoarding-trillions.html)**
>
> It's an economic mystery â but it might tell us something important about how C.E.O.s and investors think about the future.
> [@](#):
>
> His findings show that both theories have some truth to them. For several industries, hoarding cash is clearly correlated with negative results. When publishing and entertainment companies or aircraft manufacturers hold on to extra cash, investors perceive that money to be worth less than it should, somewhere in the neighborhood of 40 cents on the dollar (the authors make a specific estimate for each industry but also provide a range to account for error). The defense and coal industries are considerably worse, with a dollar in savings valued negatively. This might suggest protective behavior by chief executives in those industries, because the market is clearly not valuing their decision to save.
>
> For other industries, though, a dollar of savings is worth a lot more than itself. For pharmaceutical companies, a dollar in savings is worth $1.50. For software firms, itâs even higher: more than $2. This means that investors are behaving as if they trust the executives in these industries, like Larry Page of Alphabet, to be smarter about using that money than the investors themselves could be. And a cursory scan of the industries in this second group â which also includes automakers, medical-equipment makers and others â correlates well with the ones hoarding the most cash. Corporations, it seems, may have amassed at least a good chunk of that $1.9 trillion in mysterious savings because the stock market is rewarding them for it.
>
> Which leaves one last question: Why? The answer, perhaps, is that both the executives and the investors in these industries believe that something big is coming, but â this is crucial â theyâre not sure what it will be. Through the 20th century, as we shifted from a horse-and-sun-powered agrarian economy to an electricity-and-motor-powered industrial economy to a silicon-based information economy, it was clear that every company had to invest in the new thing that was coming. These were big, expensive investments in buildings and machinery and computer technology. Today, though, value is created far more through new ideas and new ways of interaction. Ideas appear and spread much more quickly, and their worth is much harder to estimate. (Indeed, the impossibility of valuing the Internet is essentially what created the 2000 stock bubble.)
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### Author:  [@John\_Mace](https://boards.straightdope.com/u/John_Mace)
#### Post date: [August 5, 2018, 1:28pm UTC](https://boards.straightdope.com/t/what-do-corporations-do-with-all-that-money/819112/5 "2018-08-05T13:28:04Z")
> [@Little\_Nemo](#):
>
> The shares of Apple stock are collectively worth a trillion dollars. So the CEO does not own Apple. No individual owns Apple. Apple is owned collectively by the people who own its five billion shares, which are valued around two hundred dollars each.
>
> So some of Appleâs owners might not have enough to buy an Apple computer.
>
> The largest share holder is Arthur Levinson, who reportedly owns 1,160,000 shares which have a current value of around $240,000,000.
Mostly correct. I donât know who the largest shareholder is, but Warren Buffetâs company owns over 60M shares (as of about a year ago). At $200/share, well you can do the math.
Apple is loaded with cash, but you canât measure that by looking at the Market Cap which is the number of shares x the stock price. And the CEO doesnât own or even control all that cash by himself.
Large companies like Apple will invest money in future technologies and product development, buying other companies they want to add to their portfolio, paying dividends to shareholders, and just generally keeping a reserve for unknown events in the future.
Also, the OP is mistaken a bit about Bill Gates. He didnât âonce donate his money to charityâ. He does have a large charitable foundation that he and his wife run, but he [pledged most of his wealth to be donated to charity on his death](https://en.wikipedia.org/wiki/The_Giving_Pledge). He also convinced a lot of other extremely wealthy individuals, like Buffet, to do something similar.
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### Author:  [@ZonexandScout](https://boards.straightdope.com/u/ZonexandScout)
#### Post date: [August 5, 2018, 1:48pm UTC](https://boards.straightdope.com/t/what-do-corporations-do-with-all-that-money/819112/6 "2018-08-05T13:48:18Z")
I think itâs safe to assume that Apple, for example, doesnât have a checking account at the First Merchants Bank with $998,848,327,781.42 in it. Companies have cash reserves and some very smart people to manage their money, but a lot of their worth (as has been pointed out) is in assets like real estate, equipment, proprietary technology, etc.
As a side-note, Iâll mention that I have been involved in many construction and renovation projects for large, multinational companies. Construction people often like to take pride in finishing a project âunder budget and ahead of schedule.â Itâs not unusual, however, for this to be considered a BAD thing by the higher-ups. The people who manage a companyâs cash flow actually donât like to see projects that are completed earlier than planned and for less money. It screws up their financial planning and cash management. Iâve had projects where we had to scramble to figure out how to spend another couple hundred $$$ because we would be in trouble if we came in at less than 95% of the planned expenditures.
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### Author:  [@asahi](https://boards.straightdope.com/u/asahi)
#### Post date: [August 5, 2018, 2:37pm UTC](https://boards.straightdope.com/t/what-do-corporations-do-with-all-that-money/819112/7 "2018-08-05T14:37:55Z")
> [@John\_Mace](#):
>
> Mostly correct. I donât know who the largest shareholder is, but Warren Buffetâs company owns over 60M shares (as of about a year ago). At $200/share, well you can do the math.
>
> Apple is loaded with cash, but you canât measure that by looking at the Market Cap which is the number of shares x the stock price. And the CEO doesnât own or even control all that cash by himself.
>
> Large companies like Apple will invest money in future technologies and product development, buying other companies they want to add to their portfolio, paying dividends to shareholders, and just generally keeping a reserve for unknown events in the future.
>
> Also, the OP is mistaken a bit about Bill Gates. He didnât âonce donate his money to charityâ. He does have a large charitable foundation that he and his wife run, but he [pledged most of his wealth to be donated to charity on his death](https://en.wikipedia.org/wiki/The_Giving_Pledge). He also convinced a lot of other extremely wealthy individuals, like Buffet, to do something similar.
This ^
Good post, John Mace.
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### Author:  [@Sage\_Rat](https://boards.straightdope.com/u/Sage_Rat)
#### Post date: [August 5, 2018, 2:43pm UTC](https://boards.straightdope.com/t/what-do-corporations-do-with-all-that-money/819112/8 "2018-08-05T14:43:05Z")
They use it to try and make even more money.
Businesses that do otherwise donât become big businesses.
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### Author:  [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)
#### Post date: [August 5, 2018, 2:50pm UTC](https://boards.straightdope.com/t/what-do-corporations-do-with-all-that-money/819112/9 "2018-08-05T14:50:21Z")
> [@John\_Mace](#):
>
> Mostly correct. I donât know who the largest shareholder is, but Warren Buffetâs company owns over 60M shares (as of about a year ago). At $200/share, well you can do the math.
True. But Warren Buffett doesnât own the assets of Berkshire Hathaway anymore than Tim Cook owns the assets of Apple (although both own a substantial amount of shares in the company they manage).
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### Author:  [@Lumpy](https://boards.straightdope.com/u/Lumpy)
#### Post date: [August 5, 2018, 2:58pm UTC](https://boards.straightdope.com/t/what-do-corporations-do-with-all-that-money/819112/10 "2018-08-05T14:58:37Z")
They pay dividends; or alternatively decided that buying back stock is a good idea. They reinvest in expansion or modernization; and they maintain liquid capital reserves to cover unexpected losses or expenses. Except for the overall expansion of the world economy corporations eventually reach (on average) a steady state; itâs not like theyâre getting richer and richer forever.
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### Author:  [@Bryan\_Ekers](https://boards.straightdope.com/u/Bryan_Ekers)
#### Post date: [August 5, 2018, 3:23pm UTC](https://boards.straightdope.com/t/what-do-corporations-do-with-all-that-money/819112/11 "2018-08-05T15:23:24Z")
> [@ZonexandScout](#):
>
> I think itâs safe to assume that Apple, for example, doesnât have a checking account at the First Merchants Bank with $998,848,327,781.42 in it.
Nah, they built a big vault for all their cash and programmed an iScrooge to swim around in it.
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### Author:  [@Icerigger](https://boards.straightdope.com/u/Icerigger)
#### Post date: [August 5, 2018, 5:25pm UTC](https://boards.straightdope.com/t/what-do-corporations-do-with-all-that-money/819112/12 "2018-08-05T17:25:37Z")
> [@](#):
>
> There is only one use for money, to make more money
Thurston Howell III
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### Author:  [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)
#### Post date: [August 5, 2018, 5:59pm UTC](https://boards.straightdope.com/t/what-do-corporations-do-with-all-that-money/819112/13 "2018-08-05T17:59:48Z")
> [@Wesley\_Clark](#):
>
> I once read that a lot of those corporate profits are among tech companies that are waiting for a new technology revolution, and they are afraid to invest until that technology comes along.
>
> No idea if that is a true hypothesis or not.
Iâve read that tech companies donât follow the same logic as traditional companies in their stock offerings.
A traditional company would go public and sell shares in order to raise investment capital. The plan was that they would take the money they made from selling stock and use it to develop the company. The full developed company would then generate profits.
A lot of tech companies are able to develop their products while they are still privately held by the founders. Going public and selling shares isnât the start of the development process for them. Instead, itâs a sign that the development process is over. The owners arenât selling shares for investment capital to build the company; theyâre essentially converting the value of the already built company into cash.
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### Author:  [@John\_Mace](https://boards.straightdope.com/u/John_Mace)
#### Post date: [August 5, 2018, 7:12pm UTC](https://boards.straightdope.com/t/what-do-corporations-do-with-all-that-money/819112/14 "2018-08-05T19:12:02Z")
> [@Little\_Nemo](#):
>
> True. But Warren Buffett doesnât own the assets of Berkshire Hathaway anymore than Tim Cook owns the assets of Apple (although both own a substantial amount of shares in the company they manage).
But Berkshire Hathaway is a [shareholder](https://en.wikipedia.org/wiki/Shareholder), which is what you said. Itâs not a private individual shareholder, but itâs a still a shareholder.
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### Author:  [@Voyager](https://boards.straightdope.com/u/Voyager)
#### Post date: [August 6, 2018, 6:50am UTC](https://boards.straightdope.com/t/what-do-corporations-do-with-all-that-money/819112/15 "2018-08-06T06:50:43Z")
> [@Sage\_Rat](#):
>
> They use it to try and make even more money.
>
> Businesses that do otherwise donât become big businesses.
Know what they are using a lot of their money for, and money from the tax cut?
Stock buybacks - which makes money for their investors and C level managers, but does not do a lot for the company.
Companies do not invest money - or hire people - without an RoI calculation. If that shows they make more money by parking their reserves rather than investing, thatâs what theyâll do.
I have not studied Appleâs balance sheet, but I suspect that since they are very cash flow positive they can invest in product development from revenue, and donât have to dip into their cash reserves to do it. Which is why their cash reserves are still growing.
I rather doubt Google and Facebook have to dip into cash to pay for free food either.
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### Author:  [@Voyager](https://boards.straightdope.com/u/Voyager)
#### Post date: [August 6, 2018, 6:55am UTC](https://boards.straightdope.com/t/what-do-corporations-do-with-all-that-money/819112/16 "2018-08-06T06:55:08Z")
> [@John\_Mace](#):
>
> Large companies like Apple will invest money in future technologies and product development, buying other companies they want to add to their portfolio, paying dividends to shareholders, and just generally keeping a reserve for unknown events in the future.
Appleâs cash reserve is enough to handle a zombie apocalypse.
Amazon seems to be a lot more aggressive in investing than Apple is these days.
Besides their new HQ, what are they spending money on? All weâve seen lately is the watch and Apple TV. _yawn_
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### Author:  [@Dangerosa](https://boards.straightdope.com/u/Dangerosa)
#### Post date: [August 6, 2018, 1:04pm UTC](https://boards.straightdope.com/t/what-do-corporations-do-with-all-that-money/819112/17 "2018-08-06T13:04:45Z")
> [@Voyager](#):
>
> Know what they are using a lot of their money for, and money from the tax cut?
> Stock buybacks - which makes money for their investors and C level managers, but does not do a lot for the company.
> Companies do not invest money - or hire people - without an RoI calculation. If that shows they make more money by parking their reserves rather than investing, thatâs what theyâll do.
>
> I have not studied Appleâs balance sheet, but I suspect that since they are very cash flow positive they can invest in product development from revenue, and donât have to dip into their cash reserves to do it. Which is why their cash reserves are still growing.
> I rather doubt Google and Facebook have to dip into cash to pay for free food either.
But business cycles are cyclical, and you definitely want to be able to pay your bills if you go through a down cycle. Cash reserves can allow you to weather a disastrous product launch (New Coke), an ethics scandal (Wells Fargo), or a bad business cycle (every brick and mortar retailer in 2009 that is still going). They can buy you time and allow you to invest if you miss seeing a disruptive technology. They can keep you from having to layoff valuable employees in a loss quarter.
And large corporations burn cash at an astonishing rate - often in payroll.
And again, here we are talking about short term assets - not market capitalization - which as has been pointed out, isnât the companyâs asset at all, its just its market value. Market capitalization has always struck me as such a funny thing to measure, we just saw a huge market selloff of Facebook, where 15% of its market capitalization disappeared over one day - but its really pretty meaningless to Facebook - or even most Facebook shareholders. Enronâs market cap sank pretty quickly, its high market cap wasnât really a measure of anything true as it pertained to the company (other than how easy it is to defraud).
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### Author:  [@naita](https://boards.straightdope.com/u/naita)
#### Post date: [August 6, 2018, 3:40pm UTC](https://boards.straightdope.com/t/what-do-corporations-do-with-all-that-money/819112/18 "2018-08-06T15:40:20Z")
> [@Little\_Nemo](#):
>
> Iâve read that tech companies donât follow the same logic as traditional companies in their stock offerings.
>
> A traditional company would go public and sell shares in order to raise investment capital. The plan was that they would take the money they made from selling stock and use it to develop the company. The full developed company would then generate profits.
>
> A lot of tech companies are able to develop their products while they are still privately held by the founders. Going public and selling shares isnât the start of the development process for them. Instead, itâs a sign that the development process is over. The owners arenât selling shares for investment capital to build the company; theyâre essentially converting the value of the already built company into cash.
Privately held by the founders and, unless theyâre investing a fortune that already made on some other company, some venture capitalist entity.
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### Author:  [@Stranger\_On\_A\_Train](https://boards.straightdope.com/u/Stranger_On_A_Train)
#### Post date: [August 6, 2018, 4:30pm UTC](https://boards.straightdope.com/t/what-do-corporations-do-with-all-that-money/819112/19 "2018-08-06T16:30:15Z")
> [@Bryan\_Ekers](#):
>
> Nah, they built a big vault for all their cash and programmed an iScrooge to swim around in it.
This is just silly. They donât keep all that wealth in cash. It would occupy too much space and be too difficult to secure. Instead, they keep it in the form of bearer bonds stored in a multiple-layer secured safe on the 30th floor of a still-in-construction skyscraper. This is a perfectly secure way to store all of that wealth provided it is not targeted for robbery by a former West German terrorist crew turned thieves who cleverly use the FBI standard terrorist response tactics to disable the inner electromagnetic seal by cutting the buildingâs power. And how often does that happen, especially on Christmas Eve?
Seriously, as others have pointed out, much of the wealth of companies is in market valuation which can change dramatically as evidenced in the recent record valuation drop of Facebook stock. Even when companies keep large âcash reservesâ they are actually invested in a variety of assets such as stocks, bonds, real estate investment holdings, commercial paper, Treasury assets, commodities, et cetera, which are readily liquidated for conversion into cash instruments rather than holding cash directly which devalues over time. Many companies use cash reserves to repurchase their own stock in expectation of an increase in valuation and for the control it gives the company (and can also be a way of market manipulation and getting around insider trading regulations). However, typically companies use excess cash to either consolidate by purchasing competitors or suppliers, or otherwise diversifying by purchasing companies across numerous industries. It is actually fairly rare today for a company to use cash reserves for major internal improvements in existing business since it is much less risky to use investor funds (loans, stock issues, et cetera) for expansion, and using cash reserves for anything other than a stock repurchase is seen as a sign of financial insecurity; Apple happens to be in the unique position that it has so much âcash on handâ that it is its own best investor.
Stranger
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### Author:  [@Reindeer\_Flotilla](https://boards.straightdope.com/u/Reindeer_Flotilla)
#### Post date: [August 6, 2018, 8:21pm UTC](https://boards.straightdope.com/t/what-do-corporations-do-with-all-that-money/819112/20 "2018-08-06T20:21:52Z")
> [@Stranger\_On\_A\_Train](#):
>
> This is just silly. They donât keep all that wealth in cash. It would occupy too much space and be too difficult to secure. Instead, they keep it in the form of bearer bonds stored in a multiple-layer secured safe on the 30th floor of a still-in-construction skyscraper. This is a perfectly secure way to store all of that wealth provided it is not targeted for robbery by a former West German terrorist crew turned thieves who cleverly use the FBI standard terrorist response tactics to disable the inner electromagnetic seal by cutting the buildingâs power. And how often does that happen, especially on Christmas Eve?
A good fallback plan for that would be to spend a great deal of time beforehand developing positive business and personal relationships. So after any financial pitfall, an agent for a sufficiently powerful deity can provide alternate timeline forecasts thus allowing one to properly appreciate solvency-restoring charity.
The greatest trick pulled, however, was to convince the world these scenarios should be restudied around the Winter Solstice. đ
> [@](#):
>
> âŚEven when companies keep large âcash reservesâ they are actually invested in a variety of assets such as stocks, bonds, real estate investment holdings, commercial paper, Treasury assets, commodities, et cetera, which are readily liquidated for conversion into cash instruments rather than holding cash directly which devalues over timeâŚ
Thanks **Stranger On a Train** for the post, that was a nice summary of how cash-rich corporations like Apple just donât stuff it all under the mattress. Though a iScrooge McDuck swimming-in-the-gold app sounds quite interesting to picture, actually.
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