Marketplace: Mai Iskander-Datta on why companies flush with cash still carry debt

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In late 2022, Google’s parent company, Alphabet, had a total of $116.3 billion in cash, cash equivalents and marketable securities, which can easily be turned into cash. But it carries almost $14.7 billion in long-term debt. Meanwhile, Microsoft has $107.3 billion in its coffers, but it owes $45.4 billion. One reason companies carry debt—even big, profitable ones like Alphabet—is that they’re trying to time the bond market. Between 2014 and 2020, the U.S. generally had very low interest rates, making borrowing attractive. If companies waited to borrow later, they’d have to risk paying higher interest rates, which many did in 2022. Some corporations, like the Walt Disney Co. and Coca-Cola, have even issued 100-year bonds at certain points in their history to lock in low rates, said Mai Iskander-Datta, a finance professor at Wayne State University. Finance experts point out that excess cash provides valuable flexibility. And it’s an ongoing trend. Many companies around the world have built up sizable cash holdings over the past several decades, Iskander-Datta explained, as corporate profits climbed. “They can use the money to buy up companies that are struggling because they didn’t have enough cash,” she said. “It can help them have a real edge.” Iskander-Datta noted that having money in the bank is crucial for companies in dynamic growth industries or those focused on research and development because they’re in riskier business environments.

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