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by pjc50 1242 days ago
> our stock price is also our operational funds.

.. no it isn't? This is conflating "equity" with "free cash". Have a look at one of the balance sheets.

1 comments

I may very well be misunderstanding some of this.

However, until now, it has been my understanding that the way any large company works is by using their stock value as collateral against short term investments from banks, which then serve as operational funds.

Am I wrong?

You might have seen that in the crypto space, but no normal bank is going to work like that: the only point at which collateral becomes relevant is if the debtor can't pay the loan back, i.e. they're bankrupt, in which case the equity is worthless. Corporate loans will be either unsecured (companies have lots of unsecured short term debt: every single invoice sitting unpaid in accounts payable is a debt!) or secured on something physical in the way that car loans and mortgages are.

You occasionally get debt-to-equity swaps in near-bankruptcy situations.

There was a certain amount of "borrow against funds held in Ireland to avoid US repatriation taxes" done by Apple, but that wasn't using stock as security, that was using cash of a different subsidiary.

Thanks!
In the case of all of the companies in question here, yes you are wrong. They have significant amounts of free cash flow and cash on hand.
However the also use that equity as compensation. Google without RSUs would not pay much better then any other large company.
The equity used as compensation is purchased during stock buybacks and is wholly divorced from investors buying and selling stocks.
My bad. Thanks for correcting me.

It looks like I cannot delete or amend my post, which is a shame.