Discussion Question 1:
A company here in San Diego was in the news about a year ago regarding its' success and the concerns that industry analyst's had with the company. The company is Websense. They make Web filtering software for corporations, stopping employee use of company computers to access unauthorized web-sites (think MP3 music, chat rooms, etc.) while at work. The company has bucked the dot.com trend and not only went out with an IPO just near the end of the tech-bubble, but has become profitable. That's what analysts like. They have money in the bank and no debt! And that's what the analysts don't like. One asked whether they were a bank or a technology company. Kind of counter intuitive: too much cash and too little debt. Do you agree that this is a problem? Can a company have too much cash and too little debt? Is the company missing an opportunity by being conservative (hoarding cash)? What would you do in this situation if you were the CFO of the company? And what would you tell the analysts?
Yes, it really depends on the industry and what stage of development the company is in. In a start-up phase, it is normal for a company to have debt ...
The solution discusses if a company should have debt or cash reserves.