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Groupon, Inc. Message Board

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  • long_short_guy long_short_guy Dec 27, 2011 6:45 AM Flag

    Any reason to buy expensive companies like Groupon

    I think the valuation should be adjusted for the amount of net cash each company has. for example infospace, insp, has market value of 400m but has 280M cash and no debt.

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    • I just looked at INSP's balance sheet, and you're right, I think it looks pretty good, especially because of their cash, lack of debt, and high current ratio.

      However, a company's valuation should not be adjusted for their cash position. A company can add to its cash position just by diluting its shares and selling them in shelf and follow-on offerings. They can also build cash by selling assets that otherwise produce income. Also, no debt does not mean no liabilities.

      Having a large cash position raises the question, 'why isn't management investing their cash in their business?' There could be good reasons, but it can also signal that management is hunkering down, which is not good. A statement of cash flow is useful for answering this question. Changes in accounts payable and inventory (if applicable) are useful here.

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