WhileFigures10.1through10.3provideusefulinformation
aboutthedifferencesacrossallfirms,itisstillinstructiveto
lookunderneathatdifferencesacrosssectorswhenitcomes
to cash holdings. Wecomputed theaverage values of the
threemeasuresoutlined—cash/firmvalue,cash/book assets,
and cash/revenues—for different industries in the United
States,andtheresultsarereportedinAppendix10.1(atthe
end of the chapter).
15
Categorizing Cash Holdings
Giventhedifferentmotivesforholdingcash,itshouldcome
as no surprise that analysts have tried to categorize cash
holdingsin manyways.Themost commononein practice
separatesthecashbalanceintoanoperatingcashbalanceand
excesscash. Amoreusefulcategorizationfrom avaluation
perspectiveis one that dividescash intowasting cash and
nonwasting cash, based on where the cash is invested.
Operating versus Nonoperating (Excess)
CashInthepreceding section,weoutlinedwhycompanies
mayhold cash foroperating purposes.Formany analysts,
determininghowmuchcashisneededforoperatingpurposes
is viewed as a key step in analyzing cash. Once that
determinationhasbeenmade,operatingcashisconsideredto
bepartofworkingcapitalandaffectscashflows,andcash
heldinexcessoftheoperatingcashbalanceiseitheradded
backtotheestimatedvalueoftheoperatingassetsornetted
out against total debt outstanding to arrive at a net debt
number. Making the determination of how much cash is