In times of financial crisis, many companies find their balance sheets overloaded with debt. The last few years have been particularly harsh, and the latest quarterly filings showed only 22 companies in the S&P 500 index have zero debt on their balance sheets.
Of course, debt financing isn't always a bad thing. Most companies use some form of debt to finance their day-to-day operations. By doing so, a company can invest in new business opportunities without asking its shareholders for money.
Although there are many exceptions to the rule, it's usually the case that lower debt companies are less risky than higher debt companies. And if the market starts drifting lower, it's always good to have a couple of low-debt names among your holdings.
Debt-free, cash-rich companies
With that in mind, we took a look at CNBC's list of debt-free companies that also reported large amounts of cash and short-term investments as a percentage of total assets.
Cash and short-term investment are highly liquid assets that allow a company to make acquisitions and fund other investments in future growth. Having large quantities of cash also helps a company weather more difficult periods of financial trouble.
Business section: Investing ideas
A combination of low or no debt and high cash holdings can be powerful in times of financial hardship. That these companies have made it so far with a clean balance sheet is impressive indeed.
Do you think these companies will continue on this track? (Click here to access free, interactive tools to analyze these ideas.)
4. Cognizant Technology Solutions: Provides information technology consulting and technology services in North America, Europe, and Asia. Market cap of $21.52B. In addition to having $0 in debt, the company has $2.29 billion in cash and short term investments. Cash as % of assets: 44.9%.
5. Forest Laboratories: Develops, manufactures, and sells branded and generic forms of ethical drug products. Market cap of $8.46B. In addition to having $0 in debt, the company has $2.205 billion in cash and short term investments. Cash as % of assets: 31.8%.
6. Intuitive Surgical
7. Bed Bath & Beyond: Operates a chain of retail stores. Market cap of $15.02B. In addition to having $0 in debt, the company has $1.52 billion in cash and short term investments. Cash as % of assets: 26.1%.
8. Autodesk: Provides design software and service solutions to customers in architecture, engineering, and construction; manufacturing; and digital media and entertainment industries. Market cap of $8.29B. In addition to having $0 in debt, the company has $1.34 billion in cash and short term investments. Cash as % of assets: 44.7%.
9. T. Rowe Price Group: T. Rowe Price Group, is a publicly owned asset management holding company. Market cap of $15.42B. In addition to having $0 in debt, the company has $1.01 billion in cash and short term investments. Cash as % of assets: 26.2%.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Rebecca Lipman owns shares of AMZN.