What's the right amount of cash for a company to hold if its market capitalization is $2B?
There's not an exact ratio. It's like saying how much money should you hold in savings relative to your unexpected/future costs that you'll incur. You have no way of knowing 100% what those costs will be. They can't be foreknown. But we know that we need to have a lot of money in reserves for when unexpected expenses do come up. Its the same way with companies, except on a larger scale. They need the case to be able to ride through an earnings slump due to a recession, or a product launch that didn't go so well, etc. A $2 billion company is really not all that large of a company for a publicly traded company. That would be the smallest of mid-cap companies...almost a small cap company. So that a lone means it carries more risks than a larger company. So they'd likely have to have (at the point of my investment) at least $500 million in cash. A small cap and many mid-caps will not see my investable dollars. It happens, but it's rare. And when it does happen, they need to be very financially fit. Our latest portfolio pick is a mid-cap, only a $5 billion company. But it carries a lot of cash for its size...it makes a lot of money (in earnings) for its size and it has almost no debt relative to its size.