Accenture 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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The article Accenture Is Awash in Cash originally appeared on Fool.com.Brendan Mathews owns shares of Berkshire Hathaway, Apple, Google, Amazon.com, Facebook, and Accenture. The Motley Fool recommends Accenture, Amazon.com, Apple, Berkshire Hathaway, Facebook, and Google and owns shares of Amazon.com, Apple, Berkshire Hathaway, Facebook, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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