Thank you very much for this perfect write-up Oliver! It was really great to read all aspects of net net investing as you have put them clearly.
I have a question regarding the part you explaining that not every cash is valued at 100%. I totally agree with that. I think we should factor out the cash amount requiring to sustain business operations. So, net net investors can focus more on “excess cash”, which is ready for distribution to shareholder, therefore can lead value to be realized. So, higher the excess cash, higher the possibility of catalyst being in place for that stock. My question is that how do you calculate cash needed for business operations and so excess cash? Do you have an approach or formulation for that or you use some common assumption like “cash requiring for business operations as 3-5% of the revenue”?
Thanks very much, Onur! As for operating cash, 1-5% of revenue is generally sufficient, but it depends on the business and the economy in which it operates. Companies in emerging markets and more cash-based economies must hold more operating cash. But when it relates to liquidation analysis, if you could shut down the business fairly quickly, you would include all cash, since operating cash will be freed up once all liabilities and contingencies are accounted for.
Thank you very much for this perfect write-up Oliver! It was really great to read all aspects of net net investing as you have put them clearly.
I have a question regarding the part you explaining that not every cash is valued at 100%. I totally agree with that. I think we should factor out the cash amount requiring to sustain business operations. So, net net investors can focus more on “excess cash”, which is ready for distribution to shareholder, therefore can lead value to be realized. So, higher the excess cash, higher the possibility of catalyst being in place for that stock. My question is that how do you calculate cash needed for business operations and so excess cash? Do you have an approach or formulation for that or you use some common assumption like “cash requiring for business operations as 3-5% of the revenue”?
Thanks very much, Onur! As for operating cash, 1-5% of revenue is generally sufficient, but it depends on the business and the economy in which it operates. Companies in emerging markets and more cash-based economies must hold more operating cash. But when it relates to liquidation analysis, if you could shut down the business fairly quickly, you would include all cash, since operating cash will be freed up once all liabilities and contingencies are accounted for.