Hold Onto Your Cash

A study was conducted of both thriving and unsuccessful businesses to determine their asset mixes. Data for the study were gathered from the Compustat Tapes, which contain 20 years' worth of financial data. The largest percent of total assets of the most successful firms tended to be cash. Cash...

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Bibliographic Details
Published in:Strategic finance (Montvale, N.J.) N.J.), 1992-03, Vol.73 (9), p.27
Main Authors: Czyzewski, Alan B, Hicks, Donald W
Format: Magazinearticle
Language:English
Subjects:
Asset management
Cash management
Financial services
Inventory
Receivables
Return on assets
Statistical data
Trends
Online Access:Get full text
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Summary:A study was conducted of both thriving and unsuccessful businesses to determine their asset mixes. Data for the study were gathered from the Compustat Tapes, which contain 20 years' worth of financial data. The largest percent of total assets of the most successful firms tended to be cash. Cash composition started high among the least successful firms, decreased, and finally reached its apex among the most successful firms. In general, successful firms were categorized as those that minimize holdings of fixed assets and inventory and have high amounts of liquid assets with a good collection system. The major surprise was the high cash holdings. Because cash is a nonproductive asset, it would seem that successful firms would not want to tie it up. Nevertheless, the research found that the top firms in all industries have the most cash. Actual holdings for the most successful firms ranged on average from 14.9% in services to 82.2% in professional services. In construction, financial services, and professional services, cash holdings were the greatest of all assets for the successful entities.
ISSN:1524-833X