It always feels good when you've got a lot of money in your bank account. You can cover all your expenses, save for the future and even go on a trip or buy something special.
The same thing goes for companies, too. Many companies bring in enough revenue to turn a profit, yet they may have to borrow money to buy equipment, property and materials. They take on debt to fund business growth as well. Having debt is a common thing for businesses.
However, some companies are so successful they not only have solid profits, but mountains of cash and little to no debt. These cashed-up companies can be great earners for investors and they can survive tough market conditions when their competitors struggle to pay the bills.
Here are two great examples of strong earners with lots of cash in the bank.
Flight Centre Travel Group Ltd (ASX: FLT) is the leading travel agency business in Australia. Recently, the travel agency had to lower its earnings forecast slightly due to the weaker economy, but its finances are solid. As of the end of June 2014, the company had a $476 million cash position of its own money on top of the $206.9 million in net profit.
How much long-term debt did it have at the time? A miniscule $2 million. It has the resources to ride out this slow business environment and even fund its overseas expansion, which is seeing good growth. The stock pays a healthy 4.3% yield fully franked and is trading at a low 13 times earnings. It could be a buying opportunity now for the long-term investor.
ResMed Inc. (CHESS) (ASX: RMD) also has a good track record for earnings growth. The company is a leading producer of breathing aids and respiratory devices in the US. It does have about US$375 million in long-term debt, which is fine for a growing company in a huge US healthcare market.
What's great is the US$882 million cash position ResMed is sitting on. If it wanted to, ResMed could pay down all of its long-term debt and still have close to US$500 million left over. Its financial year 2014 net profit alone was US$345 million, so the company has no trouble covering its debt repayments and can keep adding to the money pile. It's the kind of stock you can feel confident about in your portfolio.
