Paying With Cash – 5

Corporate “Debt-Free”

One of the most successful companies ever to grace planet Earth completely debt free? If debt is so good and provides so much so-called tax relief, why is the company that produced the richest man in the world debt free? Of course, I am talking about Microsoft, which has no debt and more than fifty billion in cash! That’s a cool fifty-thousand-million dollars. Not only this company, but also many others are debt free.

Thousands of others like it have chosen to have absolutely no corporate debt. These companies include Walgreen, Cisco Systems and William Wrigley. Cisco Systems has never borrowed money and does not plan to. Cisco Systems, the networking company, funds its own expansion instead of borrowing money.

Not having debt helped companies survive during the dot-com bust. As I am writing this, Cisco earned $772 million during its most recent quarter, while Lucent (a company in great debt) lost $7.9 billion. Lucent pays interest each quarter on $3.2 billion. Walgreen expands its drugstores by the monthly cash it generates. Its corporate philosophy, according to a company representative, is “We’re a pay-as-you-go type.” A competitor of Walgreen is Rite Aid, which struggles with paying interest on a heavy debt load of $3.7 billion.

Wrigley, the chewing-gum maker, has never had any long-term debt since it was founded some 110 years ago. Ross Stores doesn’t borrow any money to expand. Each new store costs $1.3 million to open, but generates an average of $6 million in revenue the first year of business. In the Northwest USA where I live, 34 major companies alone have no debt.

Your thoughts on this subject? Your comments appreciated!

Content © Rich Brott, 2011

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