I was asked "How to valuate a company with a lot of cash and a lot of old equipments?" in an interview.
Why do these two factors bother or what should an analyst pays special attention to when dealing with such a company? 3x a lot~
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First off, probably the most obvious thing is this company doesn't seem to be spending a lot on capex given a large cash balance. If the company is continuing to grow earnings, I would be very suspicious about the quality of those earnings and start looking for shady accounting policies. I would also be asking management why they have been so passive on their cash management and what other facets of the business have they been ignoring.
Second, from a capital structure perspective, if a majority of the companies working capital is cash and most of the equipment is old the debt capacity of the business will be limited.
The two little bits you provided would definitely raise some red flags and create a lot of accountability questions for the management team.
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