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Strategies & Market Trends : Value Investing
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To: Rainmaker888 who wrote (39383)9/23/2010 12:00:43 AM
From: Spekulatius   of 78722
 
re (net?) Cash on balance sheet. in my opinion, cash on the balance sheet is worth more than zero but each $ on the balance sheet is worth less than a $ in market cap. Here are the reasons why:

a) there is a good chance that the cash is used for something stupid, most likely an acquisition or stock buybacks when shares are fairly high. Companies with a lot of cash tend to be poor capital allocators.

b) Even if a) is not applicable the money may be "trapped" in a foreign subsidary and the only way to move it home to do something with it would be to pay extra taxes in the US. MSFT is an example of that.

I have seen a few cashes during the credit crunch when a $ on the balance sheet was worth more than a $ in market cap. This happened with REITs that raised money in secondaries. The market responded favorable to the REIT having more cash available and seemed to assign them a higher market cap. Those were pretty exceptional circumstances, though.
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