Table of Contents:

What are Cash & Cash Equivalents.
1. Why having healthy amount of Cash matters.
Where to obtain Companies' Cash & Cash Equivalents figures?
Examples of Companies with Growing Cash.
Examples of Companies with Decreasing Cash.
1. Is Decreasing or Stagnant Cash & Cash Equivalents necessarily a redflag?
Conclusion

Disclaimer: This communication is provided for information purposes only and is not intended as a recommendation or a solicitation to buy, sell or hold any investment product. Readers are solely responsible for their own investment decisions.

In our quest to build winning portfolios, we often focus on growth potential and profitability. But today, let's delve into a different aspect of company health: increasing Cash & Cash Equivalents (C&CE). Why should this seemingly dry metric matter to you, the savvy investor?

What are Cash & Cash Equivalents?

C&CE acts as a company's financial safety net. It represents the readily available cash and short-term investments like money market funds and short-term bonds.

Why having healthy amount of Cash matters

Companies need this buffer for various reasons:

Covering unexpected expenses: Imagine a sudden drop in sales or a lawsuit. Increasing C&CE indicates the company is prepared to weather such storms without resorting to risky debt.
Seizing opportunities: A well-funded company can pounce on attractive acquisitions or investments when they arise, propelling growth.
Maintaining financial flexibility: During economic downturns, companies with ample C&CE can continue operations and strategic investments while others struggle.

Here's why you should target companies with rising C&CE:

Financial stability: Increasing C&CE signifies responsible financial management, indicating a lower risk of bankruptcy or financial distress.
Strategic planning: It suggests the company is actively planning for the future, potentially indicating upcoming investments or acquisitions.
Investor confidence: Companies with growing C&CE often attract more investors due to their perceived stability and future potential.

Where to obtain Companies' Cash & Cash Equivalents figures?

You can obtain Net Debt figure from sites like Stockanalysis.com

Look under Financials > Balance Sheet > search for "Cash & Cash Equivalents".

For the Period type, it is better to choose "Trailing" to obtain the most recent & updated figures.

Example of Companies with Growing Cash

Fortinet's Cash & Cash Equivalents is in an overall growing trend in the past 10 years.

Similarly, Hubspot's too.

Example of Companies with Decreasing Cash

It is more common for companies operating in sunset industries to have decreasing Cash.

Examples include:

DallasNews Corporation from the Newspapers industry.

Macy's from the Broadline Retail industry.

Is Decreasing or Stagnant Cash & Cash Equivalents necessarily a redflag?

It's important to note that a stagnant or even slightly decreasing C&CE is not necessarily a red flag, especially for established companies like Apple and Microsoft.

These giants often possess sufficient existing C&CE to comfortably cover operational costs, service debt, and capitalize on future opportunities.

However, a continuous decline, particularly when coupled with other negative financial indicators, should warrant further investigation

Conclusion

Remember, C&CE is just one piece of the puzzle. Consider it a positive sign when paired with other strong financial indicators like profitability, healthy debt levels, and a solid business model.