Cash on hand? Here’s where many companies keep spending it
Publicly traded companies are increasingly taking one of the safest routes for investing profits:
By repurchasing company shares.
For the 2nd quarter of 2014, companies spent a whopping $116.2 billion repurchasing shares.
Believe it or not, that’s 1.6% lower than during the 2nd quarter of 2013.
Apple topped the list of the buyback kings. The company repurchased nearly $5 billion worth of shares this past spring.
Then again, that was down significantly from the tech giant’s record-setting $16 billion of repurchased shares, again back in Q2 of 2013.
Investing in the company – and shareholders’ pockets
S&P 500 companies lo-o-ove investing in themselves. This is a trend that’s been on the rise since the market crashed in 2008 with no foreseeable drop in sight.
From July 2013-June 2014, S&P 500 firms shelled out $533 billion repurchasing shares – a 26.6% jump. The busiest period was in the first quarter of this year as firms paid $159.3 billion for their own stocks, the second largest repurchase quarter ever.
So what’s going on here?
There are at least two positive signs from the continuing boom in repurchases:
1. Companies by and large have cash on hand. The bottom line for small companies, medium-sized firms and corporations is better than five years ago.
2. Stockholders are sharing in the wealth. Many money market funds that the largest number of workers are staking their retirements on have bounced back.
Now the negatives:
1. Hiring remains flat. Many companies have remained profitable even after trimming staff and salaries (of course, reducing payroll and benefits also helps some companies come out ahead).
2. Smaller companies say the U.S.’s sky-high corporate tax rates and government regulations make expanding the business more difficult than ever.
And corporations increasingly favor shielding income from Uncle Sam. Think Burger King relocating up north and Medtronic heading for the Emerald Isle.
While repurchases aren’t truly investments (they don’t show up in the Cash Flow from Investing column), they constitute a company reinvesting in itself. For now, that strategy makes a lot of sense.
Free Training & Resources
White Papers
Provided by Anaplan
Further Reading
The IRS has released proposed regulations, giving businesses needed details about tracking and reporting income based on tips. The One B...
July 26 marks the 35th anniversary of the Americans with Disabilities Act – a civil rights law that fundamentally reshaped workplace acce...
Industry demand for crude oil is rising. The price of a barrel of oil could top $100 before Halloween. Since OPEC announced it would red...
2024 is a great time to be employed for anyone who can create and read a balance sheet. Or manage an audit. Or close the books. You get...
The IRS has updated its specs for e-filing Form 1099. If you’re using any independent contractors, you’ll need this info as you...
While we’re no longer dealing with the quarter-by-quarter changes to Form 941 that occurred during the pandemic, there are some recen...