They say that value is in the eye of the beholder. This is certainly true, but when it comes to stock valuation, value rests on the balance sheet and cash flow statement.

The build-up of net cash on the balance sheet that results from the net performance of cash flow from operations less both capital expenditures and dividend payments is the primary reason how the intrinsic value of a firm increases over time. Think of a company’s balance sheet like your personal savings account. The more money you put into your personal savings relative to your liabilities and what you spend on personal dividends like vacation, for example, the wealthier you are. 

Similarly, the more cash a company saves on its balance sheet after capital spending and paying dividends, the more valuable the company is, all else equal. Perhaps somewhat counter-intuitive, dividend payments actually reduce the value of the company when cash is removed from the books and handed to shareholders.

The importance of balance sheet net cash is often overlooked in the valuation equation as most investors rely on multiple analysis such as comparing the price-to-earnings ratio to historical measures or to a company’s peers or competitors. Some investors aren’t paying attention to cash-flow and balance-sheet dynamics, which is why some may not completely understand the mechanics of dividend payments on valuation. Though interest paid and interest earned are theoretically factored into accounting earnings, the impact of such dynamics has been relatively muted in an environment of ultra-low interest rates.

But as interest rates rise, and they inevitably will, the net cash or net debt position of a firm can have a profound impact on the company’s future accounting earnings. For example, firms will be able to invest balance-sheet cash at higher rates, or in net-debt situations, where the majority of debt is floating-rate, companies will have to foot a higher interest bill. One is good for accounting earnings, the other potentially bad.

The list below includes stocks that have some of the largest net cash positions relative to their respective market capitalizations. It showcases firms where a large portion of their intrinsic value rests on the balance sheet. Some have well over 40% of their intrinsic value generated right from tangible net cash. Those on this list can also be viewed as potential targets for activist investors, while the large net cash positions could also make them acquirers, one-time dividend payers, share buyback candidates, or offer enough dry powder to execute a turnaround.

Though evaluating the balance sheet may be a somewhat boring proposition for some, these stocks will be anything but as they eventually put their cash to use. We're not saying that we like these companies -- we're saying that these companies may be in the news quite a bit in coming years, for good or bad. Idle cash tends to attract a lot of interest.

Note: The net cash position is total cash and marketable securities less short and long-term debt. Data retrieved from the latest annual filing, or latest quarterly filing, where asterisked. Market capitalization is the market capitalization of the firm at the time of this writing.

Honorable Mentions 

a) QLogic Corp. (QLGC) 

Net Cash Position: $278.03

Market Cap: $1.33 billion

Net Cash to Market Cap: 20.9%

b) Insperity (NSP)

Net Cash Position: $349.1 million

Market Cap: $1.34 billion

Net Cash to Market Cap: 26.1%

15) Form Factor (FORM)

Net Cash Position: $163.83 million

Market Cap: $537.24 million

Net Cash to Market Cap: 30.5%

14) Vishay Intertech (VSH)

Net Cash Position: $652 million

Market Cap: $2.05 billion

Net Cash to Market Cap: 31.8%

13) Overstock (OSTK)

Net Cash Position: $182.22

Market Cap: $572.9 million

Net Cash to Market Cap: 31.8%

12) News Corp (NWSA)

Net Cash Position: $3.15 billion

Market Cap: $9.74 billion

Net Cash to Market Cap: 32.3%

11) Bebe Stores (BEBE)

Net Cash Position: $100.67 million

Market Cap: $303.33 million

Net Cash to Market Cap: 33.2%

10) Apollo Group (APOL)

Net Cash Position: $1.07 billion

Market Cap: $3.05 billion

Net Cash to Market Cap: 35.1%

9) Travelzoo (TZOO)

Net Cash Position: $54.8 million

Market Cap: $151.9 million

Net Cash to Market Cap: 36.1%

8) AVX Corp (AVX)

Net Cash Position: $899.3 million*

Market Cap: $2.46 billion

Net Cash to Market Cap: 36.6%

7) Rosetta Stone (RST)

Net Cash Position: $64.66 million

Market Cap: $165.46 million

Net Cash to Market Cap: 39.1%

6) Electro Scientific (ESIO)

Net Cash Position: $79.63 million*

Market Cap: $198.8 million

Net Cash to Market Cap: 40.1%

5) Aeropostale (ARO)

Net Cash Position: $109.2 million*

Market Cap: $259.53 million 

Net Cash to Market Cap: 42.1%

4) KBR (KBR)

Net Cash Position: $970 million

Market Cap: $2.1 billion 

Net Cash to Market Cap: 46.2%

3) Zynga (ZNGA)

Net Cash Position: $1.196 billion

Market Cap: $2.58 billion

Net Cash to Market Cap: 46.4%

2) TAT Tech (TATT)

Net Cash Position: $27.98 million

Market Cap: $59.6 million

Net Cash to Market Cap: 46.9%

1) Career Education (CECO)

Net Cash Position: $229.6 million

Market Cap: $347.1 million

Net Cash to Market Cap: 66.1%

Note: Yahoo (YHOO) and ADP (ADP) have been excluded from the list due to the well-documented Alibaba (BABA) stake and ‘funds held for clients,’ respectively.