Many investors consider a large cash position as the ultimate safety net. With a large cash hoard, a firm should be able to weather an economic storm, fund research and development efforts, acquire other firms, pay out dividends or repurchase shares and even entice a buyout offer. However, a high cash position also has its disadvantages. Cash is generally defined as cash plus marketable securities that are readily convertible into cash. A large cash position reduces profit margins when it earns a lower rate of return than other assets in the firm. A critical question to ask when looking at cash-rich firms is why are they holding on to the cash?

This issue’s First Cut presents firms trading with a high level of net cash per share relative to their share price. Net cash is calculated by totaling cash, marketable securities and short-term investments and subtracting current liabilities. Net cash is a traditional measure of excess cash on hand. Beyond high net cash levels, firms passing the First Cut screen had to have positive earnings and operating cash flow, as well as debt levels below the norm for their industry. Financial stocks were excluded because of the unique nature of these sectors and special cash holding requirements. The universe was limited to exchange-listed stocks with a share price above $5. Foreign companies and ADRs were not explicitly excluded. The 30 stocks with the highest level of net cash as a percent of share price made the First Cut.

The First Cut listing presents the historical sales and earnings growth rate to examine recent growth and the market capitalization of each stock to indicate the size of the firm. The 52-week price change highlights each stock’s market performance. A high net cash level relative to share price does not ensure financial strength or price stability. It is important to carefully examine the complete balance sheet, understand the growth potential and risk of the company and its industry and trust management’s ability to use any cash hoard wisely.

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