Accenture Is Awash in Cash

Accenture (NYSE: ACN  ) has handily beaten the S&P 500 over the past three-, five-, and 10-year periods. But whenever I talk about it with friends or colleagues, their eyes glass over. It's not a high-growth stock or a super-cheap stock, so it doesn't get much interest. That's too bad, because the company is awash in cash, and it regularly uses that cash to reward shareholders.

A cash machine business
Accenture is a people business. Its assets are primarily intangible -- employees, brand, client relationships, and intellectual property. To grow, it doesn't require much in capital expenditures -- just outfitting new offices with furniture and new employees with computers. As a result, the company generates healthy amounts of free cash flow. Last year, it generated $2.9 billion in free cash flow, and over the past five years, it has generated $14 billion in free cash flow. Next year, management is forecasting $3.2 billion to $3.6 billion in free cash flow. That's a lot of cash generation for a $50 billion company.

Fortress balance sheet
Accenture not only generates a lot of cash; it also holds a big war chest of cash on its balance sheet. The company has virtually no debt and cash reserves of more than $5 billion, or 10% of its market cap. In other words, the balance sheet is pristine.

Sending cash back to shareholders
At Berkshire Hathaway's annual meeting in 2009, Charlie Munger said: "We prefer businesses that drown in cash. ... We prefer those that can write us a check at the end of the year." Accenture is certainly one of those businesses. In fact, the company has been writing checks to shareholders since it came public more than a decade ago. Since its IPO, Accenture has returned 93% of free cash flow to shareholders via dividends and stock repurchases.

Foolish bottom line
Bruce Berkowitz of Fairholme Funds has a simple maxim: "Count the cash." Accenture's boring business generates lots of cash. Management pays that cash out to shareholders. It's a simple but winning formula for shareholders.

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