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Top 5 Cash Cow Companies in India

Created on 02 Sep 2021

Wraps up in 4 Min

Read by 17.3k people

Updated on 28 Oct 2023

“Profits are an Opinion, Cash is the fact”, this statement by Alfred Rappaport sounds quite impactful in today’s time, where generating cash has become an integral goal for various companies.

In this article, we are going to decipher the relevance of cash for a company and pick up the “Top 5 cash-generating companies in India”.

At the outset, let’s start with understanding the significance of an adequate cash pile.

Why is having Cash important for a business?

During a time of crisis, cash has always been a saviour. The reason is that it is the most liquid asset. Monitoring cash flow is an important component of keeping a company functioning smoothly. This is why cash flow is essential than profit.

The reason why we should not only focus on profit is that the companies do not receive revenue immediately after sales. You may not receive the payment for months, but still, you have to pay off your liabilities.

Besides, apart from meeting the obligations to pay the bills and salaries, Cash is also important for promptly tapping on expansion opportunities, negotiating and availing credit facilities, dealing with emergencies, etc. 

How to measure the liquidity of an organisation?

First, we need to understand what liquidity is. Liquidity is basically how quickly the assets can be converted into cash. It means how efficiently the company is able to meet its working capital requirements using its current assets. In order to measure the liquidity of an organisation, various metrics can be used. The following are some of them:

  • Current Ratio 

It is the simplest ratio to assess the liquidity of the company. The formula to calculate is to divide the Current Assets by the Current Liabilities. If it is greater than 1, it can be said that the company will be able to meet its short-term obligations. A current ratio of less than 1 indicates that the company does not have sufficient cash to meet its current liabilities, which may lead to illiquidity.

  • Cash Reserves

Cash reserves are relevant for the business as the company can use these funds when any unexpected cost comes up. The main agenda is the ability to run the business in times of crisis, like when client payments are delayed, or there is an economic slowdown.

  • Actual Cash Balance

The actual cash balance provides liquidity to meet the financial obligations of the company. The balance is required so as to access the funds as and when the need arises. To acquire another business or to grab an opportunity, one needs to have positive cash flows, as one cannot rely on a line of credit in this competitive market.

How to identify Cash Cow companies

The first criterion is the current ratio should ideally be greater than 2. This means that the company has twice the current assets to meet its short-term obligations. Plus, the cash reserves and the actual cash balance should be sufficiently high.

Now you can use a good screener like Ticker to filter out the top 5 cash-generating companies in India using the above criteria (plus some other good metrics for better screening) - 

The query used here is: Reserves TTM>25000 and Cash Bank Y1 >3000 and ROCE Y1>25 and ROE Y1> 20 and Current Ratio Y1>2

 

(Source: Ticker Screener)

Top Cash Cows in India

Here’s the list of top picks from the companies screened:

1. Tata Consultancy Services Ltd.

A global leader in IT services, Tata Consultancy Services Ltd, aka TCS, is virtually debt-free. It is a part of the renowned Tata Group and offers invaluable expertise to the customers.

  1. (Source: Ticker by Finology)

2. ITC Ltd.

This company was incorporated under the name Imperial Tobacco Company of India Ltd. to manufacture tobacco and cigarettes in India. Later on, it diversified its presence across multiple verticals, including cigarettes, Hotels, FMCG, agribusiness, packaging, etc. Its agri-business is one of the major exporters of agricultural products in India.

 (Source: Ticker by Finology)

3. Life Insurance Corporation of India

 

Life Insurance Corporation of India (LIC) is a public sector insurance company and investment corporation headquartered in Mumbai, India. It is the largest life insurance company in India in terms of market share. LIC was founded on September 1, 1956, when the Parliament of India passed the Life Insurance Corporation Act, nationalising the private life insurance industry in India.

(Source: Ticker by Finology)

4. HCL Technologies Ltd.

HCL Technologies Ltd. is popular as the third-largest service-based IT company in India. With a high employee turnover ratio and positive operating margins, HCL Tech is also a well-known consulting firm in the nation.

(Source: Ticker by Finology)

The Bottom Line

We all know cash is king, but only if it is used wisely and efficiently. We have provided you with top cash-generating companies, but this cannot be the only criterion to invest in them. Having huge amounts of cash without proper usage shows the mismanagement of funds.

To sum up, it all boils down to how the cash generated is being used by the company. Because that’s all that matters!

Invest wisely.

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Kanishka Tayal

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Kanishka is a finance enthusiast, currently pursuing her master's in Banking and financial services domain. She loves to doodle in her spare time. She is a keen learner and is willing to pursue her career as a financial analyst.

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