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Why Capital Hoarding Is Bad For Shareholders
By The Good Investors  •  February 2, 2023
Constellation Software is a company with an incredible long-term track record. Its founder and CEO, Mark Leonard, writes in his shareholder letters that a company should not hoard capital unnecessarily. I completely agree. Money that a company cannot effectively invest should be returned to shareholders as soon as possible. 

Capital hoarding dilutes returns

Here is an illustration of why capital hoarding dilutes returns. Let’s say there are two companies: Company A and Company B. They will each generate $1 in free cash flow per share per year for 10 years before they cease operating. The difference is that Company A returns all its annual free cash flow to shareholders each year while Company B hoards its cash. Company B also earns negligible interest, and only returns all of the cash to shareholders in one go at the end of 10 years. With the above as a backdrop, Company A’s shareholders...
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By The Good Investors
We are Chong Ser Jing and Jeremy Chia, and we started The Good Investors in the aftermath of The Motley Fool Singapore’s closure in late 2019. We both have a passion for stock market investing and believe deeply in enriching society through our investing activities. One way we can do so is through investor-education. The Good Investors is our personal investing blog and will serve as a free platform for both of us to openly share our investing thoughts with you.
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