Cash Is King

The recent world financial crisis again proves that Cash is king. Earlier article in my other blog explains about Profit Vs Cash concept wherein profit is not cash hence a highly profitable entity can also go down under without proper cash/liquidity supports.

Companies with the right balance of surplus cash can derive certain good opportunities. Let’s look at the recent case of  Warrant Buffett acquiring some stakes in Goldman Sach and GE

Details:

• In an interview with PBS’s Charlie Rose,Warren Buffett ,heralded as the world’s best stock picker quoted that “ there are times when cash buys more than other times and this is one of those times where it buys more”

• Both Goldman Sach and GE sold to Buffet a combined USD 8 billion in preferred shares that pays a 10% dividend,allowing his Berkshire Hathaway Inc to earn 10% dividend or USD800 million annually. Besides these both companies gave Berkshire the rights to buy at their shares at discount at any point in the next five year. In return,the companies got Berkshire’s cash and the endorsement of the “Oracle of Omaha” at a time when stock prices are falling on concern that a tightening credit market may hobbled even the largest companies.

• For Buffett,whose Berkshire Hathaway had USD44.3 billion in cash at the start of the year,he would commit at least USD28 billion this year to acquire companies,finance buyouts and purchase securities for Omaha,Nebraska-based Berkshire.(Buffett is the Berkshire’s chairman)

Well,for those cash rich companies,maybe there are now good times for certain investment like buying stakes into your trusted supplier’s companies,or investing cleverly like having preferred shares and warrants into very profitable companies that need allies during this world financial crisis.

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