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Cash is king, and these companies have a lot of it.

Our economy faces many headwinds today: Credit remains tight, unemployment is expected to remain elevated for an extended time, problems continue in housing, and although households are reducing debt, it will take some time to pay off debt loads. While businesses have been smart to hoard cash and are starting to invest it -- whether through raising dividends, share buybacks, or strategic acquisitions -- the recent economic data indicate the economy is moderating from the pace seen at the beginning of this year. The question is whether this is a short-term blip, or something more.

With these forces at play, liquidity has become more important than ever.

Investing in companies that have lots of cash, like Apple, is extremely prudent in this environment because companies need strong balance sheets to manage through uncertain economic times and take advantage of opportunities.

There are a number of metrics you can use to evaluate a company's liquidity. One of the easiest is the current ratio (current assets divided by current liabilities), which measures the company's ability to pay off its short-term obligations. A current ratio of 1 means the company has just enough short-term assets to pay off its short-term liabilities; higher ratios mean that some current assets would be left over.

Another way to view a company's cash position is to look at cash per share. This shouldn't be looked at in isolation, though, because it's a dynamic number, and the company could be burning through its cash instead of generating more. Look for trends in cash flow alongside it. For instance, is cash flow from operations accelerating over a multiyear period? The answer should be yes.

OK, so now you have a couple of tools to assess a company's liquidity. How do you go about finding the good companies? One surefire way is to use The Motley Fool's CAPS screener, an excellent tool to help you identify cash-rich companies.

To find some of the best liquid companies, I searched for those that have these four traits:

  • A CAPS top rating of five stars.
  • A current ratio of 2 or greater.
  • Cash per share of $2 or greater.
  • Market cap of $100 million or greater.

Here's what my screen came up with:


Cash Per Share*

Market Cap (in billions)

Current Ratio

Almost Family (Nasdaq: AFAM  )




American Science & Engineering (Nasdaq: ASEI  )




Diana Shipping (NYSE: DSX  )




DreamWorks Animation (NYSE: DWA  )




Endo Pharmaceutical




Genco Shipping & Trading (NYSE: GNK  )




Quality Systems (Nasdaq: QSII  )




Varian Medical Systems (NYSE: VAR  )




Source: Motley Fool CAPS, as of July 29. *Does not include short-term investments.

This CAPS screen turned up some great companies, but a company's liquidity should be only one part of your analysis -- you also have to ask yourself whether these companies will remain cash-rich.

For example, let's take a closer look at Apple. Consumers remain cautious, and Apple is a consumer-facing company. However, the maker of the iPod, iPhone, and now the iPad showed remarkable strength in the midst of the downturn, and recently overtook Microsoft in market capitalization. It’s now the second most valuable company in the world as measured by market cap, trailing only ExxonMobil by $50 billion. What’s more, revenue in the company’s third quarter rocketed 61% to a record $15.7 billion! If this technological whiz kid can continue churning out popular and innovative products -- which investors appear to think it can, as evidenced by its increasingly growing market cap -- cash should continue piling into its coffers.

When screening for stocks with strong cash positions, always remember the words of Jerry Maguire client Rod Tidwell: "Show me the money!"

To learn more about these companies or other investment ideas, check out what our 165,000 CAPS community members have to say. Your opinions are more than welcome!

Related Foolishness:

Fool contributor Jennifer Schonberger does not own shares of any of the companies mentioned in this article. You can follow her on Twitter. Microsoft is a Motley Fool Inside Value pick. American Science & Engineering is a Motley Fool Rule Breakers recommendation. Apple, DreamWorks Animation and Quality Systems are Motley Fool Stock Advisor choices. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Almost Family. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.

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Related Tickers

10/21/2016 4:00 PM
AFAM $41.40 Down -0.45 -1.08%
Almost Family CAPS Rating: *****
ASEI $0.00 Down +0.00 +0.00%
American Science a… CAPS Rating: **
DSX $2.51 Down -0.02 -0.79%
Diana Shipping CAPS Rating: ****
GNK $5.39 Up +0.13 +2.47%
Genco Shipping and… CAPS Rating: **
QSII $11.86 Down -0.15 -1.25%
Quality Systems CAPS Rating: ****
VAR $97.25 Down -3.04 -3.03%
Varian Medical Sys… CAPS Rating: ***