I was just going through the financial data of some tech companies. I noticed four companies (and I am sure there are more) with tremendous balance sheets. Here is a quick look:
There is little chance that any of these companies will go bankrupt any time soon. I find it comforting to invest in companies with strong balance sheets.
Having spent a large amount of time studying Berkshire Hathaway (NYSE:BRK.A) (from its inception with Warren Buffett), it is my belief that there are two important phases for a company - capital generation and capital allocation. Sometimes a great business can generate huge amounts of cash flow, only to throw it away on bad capital allocation decisions.
A real victim of horrible capital allocation is Microsoft (NASDAQ:MSFT). They may be the best cash flow generator of the bunch, but the worst capital allocator. If anyone can show me a great capital allocation move from MSFT over the last five years, I would love to hear about it.
Google (NASDAQ:GOOG) is the real wild card. They are still a young company - I would imagine they will stockpile cash for a while.
It seems interesting to me that we may have witnessed one of the best buying opportunities in history with the DOW hitting 6,500. I find it interesting that none of these companies allocated much (if any) cash to equities.