GCC Listed Companies with high cash holding 'what can one learn?

Executive Summary

Investors look at various parameters to understand and evaluate a company's attractiveness. One such item in the balance sheet is the level of cash that a company holds. If the cash balance has been consistently growing it might be a good indicator that the company is performing well and is therefore able to accumulate cash reserves on its balance sheet. However, it is essential to determine the cause behind growth in cash flow and reason for holding high cash balance before concluding whether it is good or bad for the company and its shareholders.

During uptrend in economic conditions, companies may often deplete its cash reserves in order to expand rapidly. However, this may leave organization with little cash to deal with economic downturn and may force them to resort to cost cutting measures or borrowings. Cash rich companies in this regard can utilize its cash reserves to cover its expenses and fall in revenues during economic slowdown and be cash ready when economic conditions improve.