Horizon.my

Net Cash = Cash – Borrowings

Cash includes bank balances, deposits, cash and Money Market Instruments (which may be reported as “Short Term Investments” by some companies – eg Genting) but excludes Cash held under Housing Development Accounts in the case of companies which are involved in property development.

Borrowings comprise of interest bearing debt and include hire purchase debt, finance leases, subordinated loans and unsecured loan stocks such as ICULS.

By looking at Net Cash or Net Borrowings, we have an idea of:

- whether the company is in debt after taking into account its cash holdings, or
- whether the company is in a cash position after taking into account its borrowings

Quite often, media reports would cite a company as having billions of ringgit in cash, however this in itself is meaningless as it does not cite the company’s borrowing position. A company may well have RM1 billion in cash but at the same time has RM5 billion in borrowings. So it is important to look at the overall position including other assets owned by the company as well, to get a good feel for the company’s financial strength and its ability to expand or make acquisitions.