Cash to Market Cap – Companies with lots of cash

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

Filter:

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.

Results:

Cash to Market Cap

 

These are the top 9 companies with negligible debt and a high Cash to Market cap ratio.

Performance:

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!

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7 replies
  1. Madhav Pandya
    Madhav Pandya says:

    We have to consider growth of the company as well. Market values growth first and roce and roe and cash at end.

    Reply
    • Research Team
      Research Team says:

      True! Also, companies often keep cash in books for planned capital expenditures. Cochin Shipyard is going to invest most of the cash in new facilities.

      Now, the cash might be earning at the most 6% p.a. in liquid funds thus dragging down the ROE of the company. The planned capex might give a higher ROE of say ~ 16% p.a. and thus boost up the overall firm’s ROE.

      Reply
  2. Nitin
    Nitin says:

    Not sure why HT Media did not qualify in your list. In addition to a high cash balance, they also have invetments in other listed company – HMVL. These together is more than HT Media’s market cap.

    Reply
    • Research Team
      Research Team says:

      Hello Nitin,

      We have considered only “cash and cash equivalents” above 20% of the market-cap. We will soon be writing another report on companies with investments > current market cap. Cheers!

      Reply
    • Research Team
      Research Team says:

      Hello,

      Rites has a clients funded balance of Rs 2,210 Crores and owned funds of Rs 1,419 Crores. The same can also be verified in the FY18 Annual report. What you have rightly pointed out is the “owned funds”.

      Reply

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