Apple dispute highlights investor dilemma What is Apple's business worth? Is it $440bn, the company's market capitalisation on Friday afternoon? Is it $303bn, the market capitalisation net of the company's $137bn cash pile? Or is it the discounted value of its relatively small dividend income stream? These questions are at the centre of the continuing debate about shareholder value at the technology group - and the wider issue of how much importance investors should ascribe to cash, when valuing any company's shares. On Thursday, activist hedge fund manager David Einhorn launched a legal bid to force Apple to return billions of dollars from its mounting cash pile to shareholders, through a new class of preferred stock. However, Andrew Lapthorne, a member of the cross-asset research team at French bank Société Générale - and a committed value investor - is adamant that cash on a balance sheet is already factored into a market capitalisation. "I don't value cash and I don't value [share] buybacks, because they don't really form part of returns to shareholders," he says. He notes that companies paying special dividends often see their share prices fall by almost exactly the same increment once the shares start trading without the right to the dividend. When screening stocks for the value index he compiles, he focuses on other measures of quality, and looks for a dividend yield of at least 4 per cent. Arguments over how much cash is too much are especially relevant to technology companies, given the degree of creative destruction in the sector - the process through which progress is built on the wreckage of previous eras. "As companies move from the front of the field to the back, they have a tendency to waste their cash on things like buying Autonomy," says Mr Lapthorne in reference to HP's ill-fated takeover of the UK software group. Apple may appear to have little need for its vast cash pile right now, but Mr Lapthorne points out that the same might have been said of BlackBerry maker RIM or Nokia 10 years ago. "It's quite normal for software and technology companies to carry large cash balances," says Stuart Reeve, co-manager of the BlackRock Global Equity Income Fund. They may not need it for operations, but they learnt from the experiences of the early 2000s that product cycles are very short. Finance directors in other sectors went through a similar experience during the credit crunch, he adds. The experience of 2007-08 has scarred CEOs. When credit markets closed up, CEO behaviour changed. They thought less about balance sheet structure and more about whether their business could survive. Such tendencies were particularly pronounced among smaller companies. Cash does not play much of a part in Mr Reeve's evaluation of companies, either. We have made decisions not to invest based on companies having too much debt. We have never decided not to invest because a company has too much cash. Henri Servaes, professor of finance at London Business School, argues that cash can be valued at a discount or a premium - it all depends on what it's there for. "If the cash gives good managers the ability to move quickly and take advantage of new opportunities while their competitors struggle, that's positive," he says. It's up to the management to make the case that the cash is worth more in the company's bank account than it would be in the hands of the shareholders. Some also see differences in attitudes to cash and dividends in different parts of the world. In the US, Mr Lapthorne argues, cash is seen primarily as a tool for defending margins and profitability, often via acquisitions. In Europe, it's seen more as a way of supporting overall shareholder returns, particularly through a steady flow of dividends. Most UK-based investors would appear to favour the latter. "We prefer a dividend because it signals an ongoing commitment," says Mr Reeve. A buyback is merely an intention. He notes that companies will suspend a buyback far more readily than they will cut a dividend. But do shares in companies with substantial cash holdings outperform those less flush? "I'm not sure there is very much evidence of that," says Mr Servaes. Mikhail Simutin, an academic at the University of British Columbia, has found a positive relationship between excess cash holdings and future stock returns, but he attributed this to their higher risk profiles. Companies with large cash holdings "have or are acquiring growth options, as is reflected by their higher market betas. They are, therefore, riskier than their low excess cash peers and so earn higher returns.