Cash Isn't Always Good

Kiyosaki, the author of the Rich Dad, Poor Dad investment series, talks about how assets aren't always assets. They can be a liability. Those who have been trained in Lean concepts understand that inventory is an asset that's a liability. (Ever had to sort through a bunch of bad stuff? Or can't find what you're looking for, because you have too much?)

Likewise, surplus cash can be the same. If it's not working for you, it's not of much value. I'm not talking about all cash--just the cash above any level of reserve (needed for capital reinvestments) or safety (liquidity in the face of a sudden downturn) that you need. Often in Economic Value Added models, as a proxy for company valuations, we penalize the surplus cash and keep the safety reserve cash neutral.

Other CFO's are realizing the same thing.  In some research, the actual value of cash on the books was $0.23/$1 to $1.80/$1. It depended mostly on the life cycle of the business.

Source: Hans Tallis, for CFO.com