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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (29224)	12/12/2007 11:30:30 AM
From: E_K_S	Respond to of 78958

One other factor I consider for a company with a high net cash position that is marginally profitable is a large insider holdings position by key management. This must be stock that they have purchased in the open market during or after any company restructure announcement and hopefully at higher market prices. I also like to see some long term incentive program for "key management". This way, key management has a vested interest in getting the company profitable and staying there for two or more years.. This still does not always work as the BOD can change their compensation package by a "back room" vote and distribute any extra cash to key executives w/o shareholder approval. This happened to me on a company turnaround situation. Everything was set up with a restructure announcement (cash in the bank from a refinance), key executives were well vested but underwater with their current stock holdings and it appeared that the company was setup for a slow and profitable turnaround. All that was needed was for the company to run lean and mean for a few quarters and begin to post consecutive higher profitable earnings. What happened was the BOD entered into a "back room" deal that forgave two key executives loans paid by the company with no performance or time requirements. Once their new compensation package hit their bank account, they left the company and did not follow through on their restructure plan. As a result, the company took another two years to return to profitability, a lot of that free cash was pissed away and the company was left with substantial long term debt. Therefore, I prefer a company that can generate quarter to quarter free cash flow rather than having a large position of net cash on their books (unless management has a large vested interest in seeing the company survive and grow). There are too many situations I have seen where a large net cash position (from a sale or company debt refinance) gets spent with no direct improvement in the profitability of earnings other than lining the pockets of management. EKS