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School’s DJ Nanda Offers Advice on Cash vs. Debt to Senior Financial Leaders

January 30, 2013
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DJ Nanda, a professor of accounting, was among dozens of world experts to offer insight to hundreds of top finance professionals gathered in Miami in January for “The Middle Market-Our World of Opportunity in 2013.” The School was the academic sponsor for the international conference, which was hosted by The Alliance of Merger & Acquisition Advisors.

Nanda moderated a roundtable discussion about capital structure, organized by the CFO Alliance. During the discussion, he challenged the executives to examine one of the most basic elements of business: Cash.

“My perspective on what’s happening with capital structure is different than other perspectives,” said Nanda. “Most talk about level of debt on the balance sheets of companies. I talk about cash; the importance of cash, and what cash tells me.”

Debt and equity, Nanda explained, both have a value that’s affected by market perceptions. But having cash on a balance sheet is a managerial choice, and it reflects the management’s personal view on where the company is headed.

“When we look at balance sheets, we ask ourselves, ‘What are managers thinking about?’” says Nanda. “And that’s what cash tells me.”

Nanda noted that companies today are holding on to more cash for a variety of reasons, some precautionary to guard against uncertainty and another that managers simply don’t have any good options to use this cash. During the session participants were asked to examine the positions of their own organizations and share their experiences with the group.

The goal of the conference was to accelerate the role of the middle market as a massive engine to transform business, renew prosperity and drive economic opportunities – both here in the U.S. and around the globe – immediately and over the long term.

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