Cash metrics for the DJIA 30
- 0 Comments
When evaluating stocks in these tough times and complex financial metrics, stick to the basics and remember the saying ”Cash is King”. I always look at the cash levels of each firm when evaluating a potential purchase because (i) it is seen as a safety margin for the firm and (ii) it is difficult to misrepresent the cash accounts through various financials audits.
To see how firms changed their cash policy in this recession, I have decided to pull a quick scan on the 30 components of the Dow Jones Industrial Average (DJIA). In the first exhibit, you will see the detailed table showing each ticker with the most recent Market Cap, Operating Cash Flow for the trailing twelve months, and Cash balance in the last reported quarter. I have decided to include OCF because it provides a measure of how much cash the firm has available for capital expenditures and other investing activities.
Exhibit #1. DJIA 30 components
You will notice that the financial service firms (C, JPM, AXP, BAC) do not provide the same cash metrics as the other sectors, so I have excluded them from any calculations going forward. In summary w/o GM, the average Cash / Market Cap rate is 7.4% with the OCF / Market Cap % is equal to 16.1%. If you are considering buying Dupont (DD) at these levels, you should find safety in knowing that 18% of your cash outlay is accounted for in their current cash position, a great margin of safety.
Exhibit 2. Summary metrics
Here are some additional charts analyzing the above data set.
Of the 26 measured DJIA stocks, the majority (18) have a TTM operating cash flow from 10%-17.5%. The major outlier is GM with a -380%, no surprise with the recent auto bailout talks.
Exhibit 3. OCF / Market Cap % Histogram
Of the 26 measured DJIA stocks, 22 stocks fall within 2.5% to 12.5% cash to market cap %. As mentioned earlier, Dupont is the star of the group with a score of 18%.
Exhibit 4. Cash / Market Cap % Histogram
Author Disclosure: At the time of posting, I currently own shares of GE, JNJ, and DIA.
If you enjoyed this article, please consider subscribing to the Finance Puzzle RSS feed.
