Cash on a company’s balance sheet leads to mixed feelings for value investors. While cash is the easiest asset to value and provides companies with the most flexibility, it also presents a major risk in the hands of the wrong management team which may choose to spend it on empire building or projects with poor returns. Value investors would prefer the cash be distributed to shareholders, but managements prefer to keep it in case an opportunity arises for its use. The Wall Street Journal recently ran an article about corporate America’s cash hoard that is worth a read:
$1.9 trillion: Corporate America’s cash
U.S. companies’ cash hoard keeps getting bigger, a trend both good and troubling.
After hitting new highs in five of the last six quarters, nonfinancial corporations’ cash and other liquid assets reached $1.9 trillion at the end of 2010, according to the Federal Reserve. That’s 7% of all their assets, the highest level since 1963.
Read the full article here.