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The Cash Trap

Cash may be a comfort in an uncertain economy, but it can also be a drag on shareholder value.

Randy Myers, CFO Magazine
November 1, 2007

Too Easy

Fortunately, other business and economic concerns especially sustainability and supply-chain management issues are gaining greater visibility even though shareholder value and corporate cash positions are or can be just as relevant within a downward spiralling economy ( which may and should be on the upswing ) The article is relevant only as another method for evaluating stock market positions and investment decisions. The various traps suggested for which market capitalization can be affected ( cash, m&a, etc... ) seem to remind me of auditing concerns for substantive testing and not endemic of a full and comprehensive analysis for the economic range ( from a microeconomics perspective ) of these companies which normally impact society, labor, research and development, and other very pertinent business trends. The "real" value that shareholders should want is, again, more consistent with long-term planning and strategic operation within their industries and not the profit-taking or distributions normally associated with market stock prices and estimates of market capitalization. True, soild cash positions are consistent with revenue and profit success yet as the charts of percentage compositions of cash compared to assets and value reveal from 1997 - 2009, too many companies within the health sector and information technology may simply not be expanding their operations and growth sufficiently to maintain their pace of cash revenue accumulation ( which probably means that consumerism is high within these sectors as compared to others )As other environmental, economic, social, and political areas affect even these companies, it will certainly impact under-leveraged high cash positions.

Posted by Michael Hemingway | February 09, 2010 12:51 pm

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