Cash to Market cap
Cash to Market cap will basically tell us, what % of the current market cap of the company is currently in cash. For example, let’s say company ABC Ltd. trades at a market cap of Rs 5,500 Crores. It has a total debt of Rs 500 Crores and cash & bank balance of Rs 2,000 Crores. This means that the entire business of ABC Ltd. is virtually available at Rs 4,000 Crores!
Many times, the cash to market cap ratio can help investors shortlist stocks that offer a decent Margin of Safety but at the same time, investors have to be skeptical of companies which are over-stating (faking) their cash & bank balances. In this article, we look at a list of companies that have low long term debt, high cash & bank balance therefore translating to a high cash to market cap ratio.
What we will exclude:
i) Banks and NBFC’s
ii) Companies having a market capitalization lower than Rs 500 Crores
i) Market capitalization > Rs 500 Crores
ii) Long term debt to equity < 0.5
iii) Cash and Bank balance > 25% of Market capitalization
PS: We ignore current investments for computation of the cash and bank balance.
These are the top 9 companies with negligible debt and a high Cash to Market cap ratio.
Does this strategy out / (under) perform the Nifty 50 index can be tracked live here:
What do you think about investing in companies with high cash to market cap ratios? Do comment your views below!