Five Companies Sitting on a Pile of Cash: But Is It Really Free?

At first glance, companies with large cash reserves may seem attractive to investors. However, this doesn't necessarily mean that the cash is 'free' for shareholders to use.

Take Indian Energy Exchange (IEX), which has 74% of its assets in cash and current investments. On closer inspection, it's clear that a chunk of this cash is not available for use by investors due to business necessities, such as member margins and settlement money.

Pfizer, another company on the list, has carried a heavy cash pile for years. While it's true that Pfizer holds significant amounts in liquid balances, these are largely safety deposits rather than surplus capital. The Indian business is relatively light on assets, with only Rs 136 crore in property, plant and equipment.

Honeywell Automation also tops the list of companies holding more than 60% of their assets in cash. However, the company's structure means that it needs working capital for project execution, rather than fixed assets. Despite this, the dividend payout has been relatively low compared to the growing net worth.

In all these cases, investors should be cautious when interpreting a company's large cash reserves. It's essential to work out how much of the reported cash is truly surplus and value the operating business on its own, without counting the same rupee twice.