|March 14, 2016||Posted by Oddmund Grøtte under Investment Theory|
Every company needs cash and working capital for their daily operations. However, any “excess” cash not needed for daily operations can be either paid out as dividends, buyback shares or do acquisitions. I calculate excess cash the following way:
- Strip cash from current assets (current assets minus cash)
- Deduct current liabilities from the amount in number 1
- Subtract long-term debt and the amount in number 2 from cash
Example: cash is 28 735, current assets is 61 644, current liabilities is 37 539 and long-term debt is 3 431. In this case excess cash is 20 674.