Amid the wreckage of weaker businesses as the dust settles, they often get a head start on growth that can propel them through the next cycle. A key attribute that helps quality companies not only survive a downturn but continue to expand in the aftermath is their strong cash positions: or, more specifically, the fact they tend to be both cash-flow resilient and to have cash on hand. They say cash is king.
Quality companies tend to have low operating expenses, especially low fixed costs. They are also capital-light, meaning they don’t need to spend a lot on maintaining, say, factories or sophisticated machinery just to stay in business. During a crunch, quality companies can make productive use of share buybacks or temporary dividend cuts to ensure they remain resilient and to prepare for a changed economic environment. That is to say, they can suspend buybacks if required as they have not been reliant on borrowing to buy back shares in order to drive earnings-per-share growth.
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