money guidance and how to get rich_216

_{Companies with piles of cash have a lot of flexibility to act quickly when}

_{various opportunities arise, but many successful companies manage}

_{down their cash balances to near zero. They use the money to buy back}

_{shares and acquire other companies, among other things. If they suddenly}

_{need some cash, they draw on lines of credit available to them.}

_{You might be surprised at just how much cash some companies have}

_{cash equivalents sitting in its coffers. Fellow giant Wal-Mart, meanwhile,}

_{had just $1.4 billion in April of 2000, while America Online had}

_{$2.5 billion as of June 2000. At the other end of the spectrum are companies}

_{such as Gillette, which had just $101 million on hand as of March}

_{2000. Different companies manage their cash in different ways, with}

_{varying degrees of success.}

_{Goodwill usually appears on a balance sheet if a company has acquired}

_{another firm and paid more than the acquired company's appraised}

_{net worth, which is very close to its book value.}

_{Imagine that Roadrunner Industries (ticker: BEEEP) acquires the Acme}

_{Explosives Co. (ticker: KBOOM). Let's say that Acme is considered a}

_{gem among explosives manufacturers and that other companies would}

_{be happy to acquire it. If so, Roadrunner probably can't get away with}

_{paying just what the company is worth — an offer like that might trigger}

_{counter bids for Acme. So Roadrunner pays a premium. This difference}

_{between the price paid and the book value of the acquired company}

_{is entered on the acquiring company's balance sheet as "goodwill."}

_{won't have that $25 million in cash it paid for Acme as an asset}

_{on its balance sheet anymore, but the cash doesn't simply disappear.}

_{It was used to purchase a new asset. So the $25 million in cash is replaced}

_{by the $20 million value of Acme and a new $5 million value}

_{designated as "goodwill." Goodwill is amortized over a period of years.}

_{In other words, just as capital assets like factory equipment are depreciated,}

_{with their value on the balance sheet decreased eventually}

_{to zero, goodwill is also incrementally reduced to zero.}