Cash on Hand - Measure of Financial Health

Definition of Cash on Hand

Cash on hand represents the amount of cash money a company has at its disposal.  This simple line item on a companies financial statement tells a lot about the health and future of the company. 

Why Cash is Still King

From the recent credit crisis of 2008, it has shown that companies which have a lot of cash on hand are able to thrive, while those that rely on financing often face financial woes, capable of bringing down the entire corporation.  Just look at how so many companies are having to restructure debt in order to stay afloat.  However, companies that have large sums of cash are able to pull from this resource in order to get ahead of the pack.  As more and more companies face financial hardships, the companies with cash on hand will be able to make aggressive acquisitions, which will prove huge wins for these companies as the economy works itself out of the recession.  This is why it is always said that out of great economic hardships, some businesses are able to thrive even more as a result of their cash on hand.

Real life example of Cash on Hand

Over the last 15 years, Microsoft has always been the benchmark for technology stocks when it comes to the amount of cash on hand.  The company has been able to carry over $50 billion in cash for a number of years.  Well, recently due to buy backs, dividends and research, the company's cash balance has fallen to roughly $26 billion.  So, what does this mean?  Well, its competitor Apple has been able to increase its cash on the balance sheet to nearly $20 billion over the same period.  This changes everythign because before Microsoft was able to sit alone at the top of the hill able to buy at will whoever they saw fit.  They now have to compete with the like of Apple, which means that Apple will have more leverage to enter into the various segments of Microsoft's core competencies, thus stealing its market share.

In Summary

While cash on hand may not pack the excitement of credit default swaps, or derivatives, it is still the best method for building a viable business that will be successful over the long run.
Tim Ord
Ord Oracle

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