subject: Joseph Wang Financial - Companies Without Debt And With A Lot Of Liquidity In The Box [print this page] Some companies not only have no debt but have a large amount of cash accumulated.
It is commonly said to buy shares of these companies is like buying an apartment knowing that one of the cabinets there is a lot of bills that will become the property of the purchaser at the time the operation is formalized. If you buy an apartment for 100,000 but in the closet there are 20,000 euros actual floor price is 80,000 euros, but first you have to pay 100,000 for access to the cabinet immediately after you have the 20,000 euros.
The case of action is slightly different because the minority shareholder to buy shares in these companies can not decide what to do with that cash (which itself could do with the 20,000 euros the cabinet), as this decision is for the managers the company. If you buy a stock for 10 euros but the company has a box of 2 euros per share could say that the purchase price is 8 euros, but the minority shareholder can not ask the company to give you their 2 euros.
This liquid can be used in several ways:
Distributed as dividend extraordinary.
Used to buy shares of the company to be canceled , thereby increasing earnings per share (EPS) and dividend per share for future years.
Used to invest in new businesses. This can be good, if new business is profitable, or bad if these new businesses assume that money wasted with no benefit to the shareholders of the company.
The first 2 cases clearly benefit the minority shareholder, while the third case the liquidity can disappear if it is made a bad choice of new investments or increase significantly if new businesses were very profitable.
In addition to the cash value in itself the fact that a company is able to develop their business in a way that generates excess cash usually such that it would not only have no debt but even increase progressively this liquidity is something that speaks volumes about the quality of the managers of the company. This factor is an intangible that can not be measured mathematically but must be taken into account for long-term investors.
