Since year-end 2019, during which its cash- and short-term investments have fallen 55%, return on equity jumped to 163% from 55%, according to FactSet. In any case, Apple doesn’t appear to be suffering in the wake of its diminished cash hoard. With high levels of cash, in contrast, there is no such discipline or accountability. This proviso is the key to why a small cash hoard is positive, Arnott argued: It imposes market discipline and accountability on any new projects or investments a company might want to make. When you get to be a certain age, cash becomes a lovely thing.Anyone who is retired and lacking steady income from work knows what I am talking about: It’s great to have a stockpile of cash to use for daily expenses and splurges like travel, but also for sudden disasters like the day two weeks ago when my 12-year-old KitchenAid dishwasher went dead. What if Apple in the future needed the cash it no longer has? Arnott replied that the company would only need to approach the debt or equity markets to raise the cash, which it would have no trouble doing - provided it was going to use the cash for a productive purpose. He therefore considers Apple’s shrinking cash hoard to be a positive for the company’s future prospects.

In an interview, Arnott said he believes the conclusions he and Asness reached two decades ago are still valid. In rare cases, small deposits are placed on separately numbered spaces on shelves in a library compartment shared by several account holders. Companies that hoarded their cash instead of distributing it to shareholders performed more poorly, on average. accumulation - (finance) profits that are not paid out as dividends but are added to the capital base of the corporation.

They analyzed corporate earnings growth over 10-year periods between 18 and found that earnings grew the fastest following years in which companies’ dividend-payout ratios were the highest. stockpile - something kept back or saved for future use or a special purpose. Their study, which appeared in the Financial Analysts Journal, was entitled “ Surprise! Higher Dividends = Higher Earnings Growth.” Arnott was co-author in 2003 (with Cliff Asness of AQR Capital Management) of a study that provided empirical support for Jensen’s theory. But does it hold up in practice? To get insight, I reached out to Rob Arnott, founder of Research Affiliates. Jensen argued that shareholders should try to “motivate managers to disgorge the cash rather than investing it at below the cost of capital or wasting it on organization inefficiencies.” Why would too much cash be a bad thing? Jensen theorized that it encourages corporate managers to engage in foolish behaviors.

Cash stockpile meaning