One of the most important aspects of running a major company is managing the stock price. As a general rule, when a company performs well, the stock price will increase. There are some companies that have high levels of capital to use. With this excess capital, the companies will purchase their own shares of stock at certain times of the year.
However, there are some people who believe that this capital could be used more efficiently. Ralph Nader recently came out and said that this was a greedy move by corporations to boost their own bonuses. He believes that companies should invest their extra capital back into the business in order to create new jobs and drive the metrics of the business.
Managing the capital of a major business is one of the most difficult things that anyone can do. There are few people who truly understand all of the implications of capital decisions. As the CFO of a major company, someone has to have a financial plan for all of the income that comes in.
Interest rates are historically low. As a result, many companies are borrowing money in order to invest in the future. In addition, some corporations are afraid to put their capital to work because the tax code is getting revisited. When the government threatens to change the tax code, companies tend to wait to spend any money. Even small changes in the tax code can mean huge changes for major companies with billions of dollars in profits.
Buying Back Stock
There are some companies that are in great financial condition. These companies have a high credit rating and little debt on the balance sheet. With their excess cash, they want to decrease the amount of shares outstanding in the business. This is when companies will purchase their own stock off of the market. This is a good move when the stock is lower than it should be.
Some people want to limit this activity for companies. Instead of buying back stock, the company could use the capital to invest in the economy. However, other people believe that business leaders should be able to run their companies any way they want. This is an issue that will be revisited as the tax debate continues.