Every year, I stock up on old books at an annual fundraising sale held by a local college. Yes, I’m still one of the few people who prefer turning pages by hand rather than swiping an electronic screen.

One of my favorite finds was an old biography of Benjamin Franklin, which held a surprising secret: two worn $1 bills tucked neatly inside. The book was already a bargain at $4, but the unexpected cash discovery essentially dropped the purchase price in half to just $2.

In much the same way, you’ll find that some of the nation’s greatest businesses are also cheaper than they appear on the surface.

Case in point: T Rowe Price (NSDQ: TROW). The asset management firm is currently valued at $95 per share (or $21 billion). But look inside and you’ll find a hefty sum of cash on the debt-free books.

$2.7 billion, to be exact.

That works out to approximately $12 in cash for every share outstanding. So if you were to buy TROW today and immediately pocket its cash, then the true net cost would fall to $83 per share ($95 minus $12.).

Analysts refer to this figure as Enterprise Value (EV). Considering it incorporates cash and debt, I find it to be a useful valuation tool.

Of course, you and I probably won’t be buying entire companies outright and taking control of their bank accounts. But this is the approach used by private equity groups (as well as gurus such as Warren Buffett and Mario Gabelli) to pinpoint market inefficiencies.

And even the smallest stakeholder is still entitled to a pro-rata share of the wealth.

If there was a ranking of U.S. companies with the deepest cash reserves (there is), you can probably guess some of the names in the upper echelon. I’m referring to those with a minimum of $10 billion on the books.

Amazon (NSDQ: AMZN) is in this club. So are Apple (NSDQ: AAPL) and Nvidia (NSDQ: NVDA). But it’s not limited to the tech sector. Berkshire Hathaway (NYSE: BRK-A), Ford Motor (NYSE: F), and Visa (NYSE: V) all make the cut.

These six businesses alone have accumulated a staggering $590 billion. Let’s just round that up to $600 billion. Some of that currency is tucked away safely in the bank, while the rest is parked in T-Bills and other safe, interest-bearing securities that can be liquidated at a moment’s notice (i.e., cash equivalents).

For perspective, Finland has a gross domestic product (GDP) of around $300 billion.

Of course, virtually every business has some money lying around. There should always be enough to cover rent, payroll, and other day-to-day working capital needs. You’ll notice, though, that most owe far more to creditors, meaning they have a negative net cash position.

Take American Airlines (NSDQ: AAL), for instance. The cash stockpile of $7 billion looks pretty good on paper, until you realize that it has borrowed $30 billion from banks and investors. Including lease obligations, the carrier has more liabilities than assets, resulting in a deficit of stockholders’ equity.

On the flip side, Berkshire Hathaway has $347 billion in U.S. Treasury bills — dwarfing its notes payable.

We won’t debate the investment merits of these two businesses or their respective industries. But from a purely financial perspective, I’d give the edge to the company with shallower obligations and deeper reserves.

And I can give you at least five reasons why.

Lower Debt Servicing Costs
Two companies might have the exact same market capitalization. Yet while the first has neatly stacked piles of cash, the other has the equivalent of loose coins beneath the couch cushions.

Cash-rich companies are generally less reliant on credit lines to fund daily operations and pursue growth initiatives. And when they do, it’s usually on favorable terms. Strong, investment-grade credit ratings mean lower borrowing costs.

And there’s no better collateral than U.S. greenbacks.

Anybody with a revolving credit card balance understands the implications. Of course, we’re not talking about a few bucks left unpaid on the family Visa card. Debt among non-financial U.S. companies has exploded from $5.6 trillion in 2016 to $10 trillion today.

But all debt isn’t created equal. While AAA-rated borrowers qualify for rock-bottom rates, those with shakier credit ratings must pay considerably more for every dollar (to say nothing of restrictive loan covenants). Thanks to aggressive Fed tightening, that era of dirt-cheap financing is long over.

A company with $10 billion in floating-rate debt must fork over an extra $25 million in annual interest expense for every quarter-point rate hike. $100 million in foregone profit for every full point.

Even for larger organizations, that’s a heavy earnings drag. Despite some mild relief lately, the influential Fed Funds Rate still stands at 4.33% today, up from 0.50% in March 2022.

You can do the math.

More than a few businesses have succumbed, collapsing under their own weight. Fortunately, most were able to lock in fixed rates before borrowing costs began to spike. But what about fresh new capital?

Lower Risk of Default
Corporate borrowers are always looking to refinance. When conditions allow, they swap out old loans and notes for new ones, ideally at lower rates. That not only reduces interest expense, but also extends maturity dates for a few years (forestalling the repayment of principal).

Unfortunately, with rates touching multi-decade highs recently, this strategy doesn’t work so well right now. Without refinancing options, those looming principal maturities can cause financial chaos. Rates aside, the capital markets can simply dry up during economic droughts, cutting off funding right when cash-thirsty companies need it most.

History is littered with bankruptcies that arose from a crippling lack of liquidity, even when the income statement looked fine.

But the cost of yesterday’s debt isn’t the only consideration. There is also the question of where and how companies will secure new funding for tomorrow.

This can be a particular concern for real estate trusts, oil and gas pipeline owners, and other groups that distribute most of their profit to stockholders. Because they don’t retain earnings, these companies must frequently tap the capital markets to grow and expand.

When the credit markets are stressed, access to funding can become cost-prohibitive — or shut down altogether. That makes it tough for many businesses to secure necessary financing. Even when times are good, those with a few dings on their credit score must pay the price.

The spread of junk bond yields over comparable Treasury securities has averaged 5.3% over the past 25 years. Whenever appetite for risk decreases, that differential widens even more. That strain can spring further leaks in a sinking ship, increasing the chance of default.

Of course, some companies might choose equity over debt, printing new shares in secondary offerings. But that can be highly dilutive to existing stockholders. Either path can send investors fleeing and stock prices diving.

The more cash on hand, the less likely that scenario.

Companies sitting on billions of unused cash won’t have to go begging for loans if the credit markets freeze up. They can access their own cash reserves any time without having to rely on external sources.

In the meantime…

Stronger Portfolio Income
Businesses don’t bury cash in coffee cans. Those retained earnings are usually directed into safe, interest-bearing securities such as money market accounts, Treasuries, preferred stocks, and asset-backed bonds.

These instruments are paying ten times more than they did just a few years ago. That is a brisk earnings tailwind for many companies, particularly cash generators like American Financial Group (NYSE: AFG).

The more zeroes in the bank, the more a business earns from passive investment income to supplement its core operating income. The same quarter-point rate increase that subtracts $25 million in annual earnings from a company with $10 billion in debt will add $25 million to one holding that much cash.

Greater Flexibility for Acquisitions and Growth Projects
Fund manager Whitney Tilson refers to cash as “financial firepower” that can be brought to bear when it’s time to go hunting. Those with ammunition can go on the offensive, bagging big trophies for shareholders.

Warren Buffett has long resisted pressure to whittle away Berkshire Hathaway’s bulging mountain of cash and patiently waits for just the right time to act. When the financial crash left companies gasping for capital, he used some of Berkshire’s hoard to extend cash lifelines — in the process, generating billions in profits.

More recently, we’ve seen Cisco extend a $28 billion cash offer to Splunk, a takeover that yielded new software tools to help analyze data and prevent security intrusions. Facebook parent Meta parted with a small portion of its stockpile to acquire a promising virtual reality (VR) fitness app developer.

These kinds of strategic deals can be powerful growth catalysts and are typically accretive to earnings and cash flows.

There’s no need to belabor this point. As they say, it takes money to make money. Companies that have saved their pennies will be better able to reinvest in growth projects or make acquisitions that strengthen the bottom line. Undisciplined rivals with nothing to spare must stand pat.

More Generous Capital Returns
This one is self-explanatory. Corporate borrowers must always repay their creditors first; common shareholders come last.

Ordinarily, there is enough to go around. But when times get tough, highly leveraged companies can’t even guarantee existing dividends — let alone hand out more. By contrast, companies sitting on billions in surplus cash have a “rainy day” fund that can be tapped if necessary to preserve dividends.

And if that rain doesn’t fall, then management has the luxury of returning some of the excess to shareholders through a combination of dividend hikes, special distributions, or share repurchases.

There are some investors who view excess cash as a warning flag, arguing that a bulging bank account suggests the business has exhausted its growth opportunities and has nothing better to do with its money.

I disagree.

While this may be true in some cases, it’s just as likely that the company is either prudent or highly efficient — or both. Those with superior returns on capital simply don’t have to pump as much money back into the business so they can meet their needs and still have plenty left over to deposit into savings.

Apple has grown by leaps and bounds and still managed to stash tens of billions in savings — few would argue the tech innovator is dying.

If nothing else, a large stockpile of excess cash tells us that a company literally generates more profit that it can spend, which isn’t exactly a bad sign. And regardless of which path the economy takes, they will be in a better position to respond.

Should the financial markets suffer some type of shock, there’s nothing more buoyant than U.S dollars. And in prosperous times, these companies will be holding all the cards.

That means large cash stockpiles are both a reassuring safety net and a springboard to opportunity.