Stéphane Ravel, asset manager specialized in equity management at Le Conservateur, explained for Cashlab the notion of cash in asset management.Asset Management.​

Can you tell us about CASH in Asset Management?

For investors, the notion of CASH is fundamental. Indeed, the CASH is the basis of the main method of valuation of an asset, a fortiori a company. This method is the DCF, Discounted Cash Flow, with which the sum of future cash flows is discounted today. This is how we get a valuation of the company.

This method is more absolute than the MULTIPLE method (Price/Earnings Ratioused in relative terms. It compares one company to another, one sector to another. 

Note that managers are increasingly relying on a CASH equivalent of this ratio, the FCF YIELD. Il représente le rendement d’une action par rapport au FCF généré sur l’année désirée. Cette dernière méthode permet donc de faire du relatif tout en gardant le CASH au centre de la valorisation.”


Have there been any recent developments that have accelerated this shift to a CASH CULTURE?

“Selon moi, la part grandissante des fonds de PRIVATE EQUITY dans le M&A of listed companies has been a gas pedal for the profession. The principle of these funds is to leverage the target as much as possible. That is to say, to use the cash generated to meet the debt repayment exclusively (no need to pay shareholders).

Finally, the objective is to transform the initial debt into EQUITY over their investment period. Thus, even without increasing the acquisition multiple (non-CASH multiple, essentially Enterprise Value/EBITDA), the value creation for the fund is enormous once the company is sold.

This requires very detailed monitoring and very effective CASH tracking tools. This is particularly important in order to be able to meet repayment obligations, regardless of the operational situation of the acquired company. This culture has gradually become imposed among all asset managers..”


In your daily life, do you also do this follow-up?

“Bien entendu ! Les gérants utilisent désormais de nombreux indicateurs opérationnels liés au CASH. Ils sont la clé de nos prévisions. Même si dans l’univers coté, le remboursement de la dette n’est pas le seul objectif, les intérêts sont alignés. L’amélioration du operating FCF gives the company the opportunity to finance its investments (CAPEX) to ensure:

  • organic growth in sales
  • acquisitions to ensure external growth in sales (a way to accelerate growth)
  • the repayment of the debt (case of PRIVATE EQUITY)
  • or shareholder remuneration (via a dividend or share buyback plans, the latter being an Anglo-Saxon culture)

Par conséquent tous les éléments constitutifs de l’operating cash flow sont analysés par les gérants.”


Companies too?

“Oui, c’est justement ça qui a évolué récemment. Ces KPIs sont données 2 à 4 fois par an par les entreprises cotées, lors des publications trimestrielles ou semestrielles, voire les deux. On parle de Cash Conversion, Organic Free Cash Flow... But now, the focus is on the components of these KPIs, and not only on the investments (the CAPEX).


Investors want to understand and anticipate the need for working capital and especially its evolution. Here again, KPIs such as the need in days of turnover, the stock in turnover... Upstream, the company must therefore be equipped to ensure this monitoring, make forecasts, and give perspectives (guidelines) to investors and respect them!


Le gérant doit donc veiller à ce que l’entreprise investisse dans l’aide à la décision, car là encore les intérêts s’alignent !”


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