Cash and Strategy
My professor for Industry Economics made a good point today that I had not thought about before. I am generally skeptical of company’s that hold lots of cash as a ’strategic reserve’. My feeling is that the cash belongs to the shareholders and should be returned to them. It is reasonable to keep some around to fund small and unexpected projects, but the bulk of it should be returned to the capital markets, which can in turn be used to fund future projects.
The point my professor makes is that many ’strategic’ projects developing creating credible threats to one’s competition, which in turn often involves investing in developing intangible resources. These are particularly difficult to get funded externally, because they are not easy to hold as collateral. Hence many strategic projects need to be funded with cash, and there is a reason to hold a cash reserve.
This interests me not because I think it is right (although I am not sure it is wrong), but because it provides a sensible explanation that differentiates strategic projects from other ones.