Most high-return businesses need relatively little capital. Shareholders of such a business usually will benefit if it pays out most of its earnings in dividends or makes significant stock repurchases.
- Warren Buffett
Leaving excessive cash at the disposal of the managers brings a lethargic attitude or forces them to expand their empires by acquisitions. This is why managers should be made accountable to regularly return the excess cash through dividends or buy backs, thus bringing down the cash level. This discipline forces the manager to be responsible to regularly return a portion of net earnings and work with the limited working capital and optimise the asset utilisation as well as the returns. The only exception to this rule is Warren Buffett himself as he has demonstrated a better capacity than an ordinary manager to deploy the excess cash generated by his managers of individual business units over a long term with consistency.
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