Bloomberg presented a video the other day providing some details into how companies are using or are not using their cash flow.
That got me thinking about that companies must use their balance sheet cash on the thesis that it is earning next to nothing, we have to return to shareholders, it is prudent financial management, etc. What does the final arbiter, the market, say about this assertion? Well, it appears the thesis does not hold much water as it pertains to equity performance. The following chart shows the average performance of companies in the S&P 500 with cash balances per share greater than 25% of the price per share versus the performance of the S&P 500, all excluding financials.
Since 2004, companies with large cash balances look to have largely outperformed the overall group in nearly all quarters.
That got me thinking about that companies must use their balance sheet cash on the thesis that it is earning next to nothing, we have to return to shareholders, it is prudent financial management, etc. What does the final arbiter, the market, say about this assertion? Well, it appears the thesis does not hold much water as it pertains to equity performance. The following chart shows the average performance of companies in the S&P 500 with cash balances per share greater than 25% of the price per share versus the performance of the S&P 500, all excluding financials.
Since 2004, companies with large cash balances look to have largely outperformed the overall group in nearly all quarters.
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