how is it that in times of crisis major businesses will go bankrupt within months? Do they have no savings or what?
In: Economics
I’ll take a stab at it. Seems like there could be a lot of variables and opinions.
The short answer is not really. For most companies having a lot of cash on hand or “savings” isn’t productive. If the company is publicly traded you will have investors clamoring for that cash via dividends or buybacks. Or you can choose to deploy that cash to make improvements to the business either via R&D (looking to develop the next big thing to stay relevant in the market) on capital improvements either building more manufacturing capacity or upgrading technology within manufacturing, or technology within the business to help improve it, or to help with grow your workforce and expand.
So, most companies have a small stockpile, but it’s not enough to sustain their operations in the face of a sudden drop like we are seeing globally currently.
Now, I did comment on someone’s post about the airline bailouts, because collectively the big four over the last decade have used some $43 billion on buybacks which really only to serve investors and insiders. Which now those insiders want the govt to bail them out so they aren’t wiped out despite us all knowing that investing is a risk.
Anyways hope this helps.
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