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.
Warren Buffett's Berkshire Hathaway just announced buying almost 19 million shares of TEVA.
Hi Sean! I'm interested in testing my knowledge of the principles you have taught by offering up a stock that I would like…
Sean, any thoughts on NRBAY...?