CHAPTER 10
Cash, Cross Holdings, and Other Assets
Mostfirms,privateandpublic,haveassetsontheirbooksthat
canbe consideredto be nonoperating assets.Thefirst and
mostobviousexampleofsuchassetsiscashand near-cash
investments—investments in riskless or very low-risk
investments that most companies with large cash balances
make. Thesecond isinvestments in equities and bonds of
otherfirms,sometimesforinvestmentreasonsandsometimes
forstrategicones.Thethirdisholdingsinotherfirms,private
and public,which arecategorized in a variety ofways by
accountants.Finally,thereareassetsthatdonotgeneratecash
flowsbut neverthelesscouldhavevalue—undevelopedland
inNewYorkorTokyooranoverfundedpensionplan.When
valuingfirms, littleorno seriousattentionispaidto these
assets, and theconsequencescan beserious. In theearlier
chaptersondiscountedcashflowandrelativevaluation,we
referredinpassingtotheseassets.Inthischapter,weexamine
someofthechallengesassociatedwithvaluingnonoperating
assetsandcommonerrorsthatcanentervaluationsofthese
assets.
CASH AND NEAR-CASH INVESTMENTS
Oneveryfirm’sbalancesheet,thereisa lineitemforcash
andmarketablesecurities,referringtoitsholdingofcashand
near-cashinvestments.Investmentsinshort-termgovernment
securitiesorcommercialpaper,whichcanbeconvertedinto
cashquicklyandwithverylowcost,areconsiderednear-cash
investments.Webeginbyconsideringthemotivesforholding