Company ABC
It has no long-term debt.
Its current ratio is around 4; rather high for a company with no debt to worry about.
It has consistently kept around 15% of total assets in cash.
One thing to watch with super-profitable companies is that they don't let too much cash pile up on the balance sheet.
It is fine for a company to build a temporary war chest if it anticipates big investments sometime in the next few years.
Cash that sits around of the balance sheet for a long time is not being used efficiently.
If you see cash as a percentage of total assets rising year after year for a firm that is already in find financial health, try to find out why management is not:
Any of the three are preferable to letting the cash account balloon.
It has no long-term debt.
Its current ratio is around 4; rather high for a company with no debt to worry about.
It has consistently kept around 15% of total assets in cash.
One thing to watch with super-profitable companies is that they don't let too much cash pile up on the balance sheet.
It is fine for a company to build a temporary war chest if it anticipates big investments sometime in the next few years.
Cash that sits around of the balance sheet for a long time is not being used efficiently.
If you see cash as a percentage of total assets rising year after year for a firm that is already in find financial health, try to find out why management is not:
- buying back stock,
- paying a dividend, or
- reinvesting it in the business.
Any of the three are preferable to letting the cash account balloon.
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