by Finally, there's the undeniable appeal of a company overflowing with cash, a tasty target for a campaign to initiate share buybacks or increase dividend payments. Which metric works best in identifying balance sheets that are attractive to activists? The ratio of a company's total cash relative to its market capitalization. The higher that ratio relative to one's peers, the more likely a company is to garner unwanted attention. When ValueAct Capital scored a seat on Microsoft's board of directors in 2013, the company's 77 billion dollars cash balance gave it a cash-to-market cap ratio more than double that of the industry median. A Satisfying Meal Taken together, all three factors – valuation, operational performance, and cash on the balance sheet – serve well to anticipate activist attention. The factors this paper identifies as important to activists are 76 percent more likely to identify a target of activists than random chance. Coming at it from the other direction, companies with strong operating performance, healthy valuations, and disciplined capital employment are less likely to become activist targets than those without them. "Like most disruptions in the marketplace," concludes the paper, "it all comes back to value creation in the end.
Topics:
Ashley Kindergan considers the following as important: entrepreneurs, Investing, Investing money
This could be interesting, too:
Lance Roberts writes Yardeni And The Long History Of Prediction Problems
Michael Lebowitz writes The MACD: A Guide To This Powerful Momentum Gauge
Lance Roberts writes Exuberance – Investors Have Rarely Been So Optimistic
Lance Roberts writes Exuberance – Investors Have Rarely Been So Optimistic
Finally, there's the undeniable appeal of a company overflowing with cash, a tasty target for a campaign to initiate share buybacks or increase dividend payments. Which metric works best in identifying balance sheets that are attractive to activists? The ratio of a company's total cash relative to its market capitalization. The higher that ratio relative to one's peers, the more likely a company is to garner unwanted attention. When ValueAct Capital scored a seat on Microsoft's board of directors in 2013, the company's 77 billion dollars cash balance gave it a cash-to-market cap ratio more than double that of the industry median.
A Satisfying Meal
Taken together, all three factors – valuation, operational performance, and cash on the balance sheet – serve well to anticipate activist attention. The factors this paper identifies as important to activists are 76 percent more likely to identify a target of activists than random chance. Coming at it from the other direction, companies with strong operating performance, healthy valuations, and disciplined capital employment are less likely to become activist targets than those without them. "Like most disruptions in the marketplace," concludes the paper, "it all comes back to value creation in the end."