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Should a Company Ever be Worth Less Than Its Net Cash?
By The Good Investors  •  June 19, 2020
When I first started investing, the “deep value” style of investing resonated with me. This style involves buying shares in a company that is trading at a discount to its net cash. It seemed like a sensible thing to do. Buying a dollar for less than a dollar sounded like a common-sense approach that couldn’t go wrong. But the net cash is just one aspect of a company. The company could be burning cash at unsustainable rates and destroying shareholder value. In this case, buying said company below its net cash will still turn out to be a bad investment. Given this, investing in a company should not be based purely on its net cash but on the future cash flows that the company can generate. How can a company be worth less than the cash it owns? This is why I believe that it may even be possible for a company to be worth less than the net cash on its balance sheet....
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By The Good Investors
We are Chong Ser Jing and Jeremy Chia, and we started The Good Investors in the aftermath of The Motley Fool Singapore’s closure in late 2019. We both have a passion for stock market investing and believe deeply in enriching society through our investing activities. One way we can do so is through investor-education. The Good Investors is our personal investing blog and will serve as a free platform for both of us to openly share our investing thoughts with you.
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