Why do some companies like Hero, Maruti, Indigo, IndiaMart sit on huge amounts of idle cash? Sitting on a large cash balance could either show a poor capital allocation track record given cash yields 4-8% rate (vs 15-20% target ROE), conservative business psyche to take care of uncertainties (esp. for cyclical industries), or an opportunistic step for managements looking for acquisition bets. “Promoters with lots of cash often behave like kids in a candy store. The really good capital allocators demonstrate capital discipline by sitting on cash for a prolonged period of time, waiting for the right opportunity.”
#1 Funda | Cash conundrum
#1 Funda | Cash conundrum
#1 Funda | Cash conundrum
Why do some companies like Hero, Maruti, Indigo, IndiaMart sit on huge amounts of idle cash? Sitting on a large cash balance could either show a poor capital allocation track record given cash yields 4-8% rate (vs 15-20% target ROE), conservative business psyche to take care of uncertainties (esp. for cyclical industries), or an opportunistic step for managements looking for acquisition bets. “Promoters with lots of cash often behave like kids in a candy store. The really good capital allocators demonstrate capital discipline by sitting on cash for a prolonged period of time, waiting for the right opportunity.”