How prudent would it be to invest (stocks/equity) in businesses that are based on Cash transactions?
If they're hiding their profits from the government, what makes you think they wouldn't hide their profits from their shareholders? Every listed company needs to maintain book of accounts, when you are investing in companies you would have to look at what is stated in the books and along with other info decide to invest in it.
Yep, but it you didn't answer my question (edit: I know it was phrased as a question, but I do know youre supposed to model changes in cash). When bankers calculate all three approaches, how do they compare them? From what I see, the conclusion of each approach gives us:  * Public Company Approach: Enterprise Value * Transaction Approach: Enterprise Value * Discounted Cash Flow Approach: Enterprise Value + Minimum Level of Operating Cash  Does an investment banker subtract out that minimum level of operating cash at the end of the calculation to get to a value that he can then compare? I think it's a bad idea. You are taking a large amount of cash and changing it into an investment that is not liquid - if you need the money, it is expensive to get it back. It doesn't matter which way you use.  As long as your comfortable with the overall level of risk/reward in your portfolio, that's what matters.  (Though I will say that there are more investment vehicles than stocks, bonds, and cash that are worth considering.) "Started to post this as a comment, but I think it's actually a legitimate answer: Running a rental property is neither speculation nor investment, but a business, just as if you were renting cars or tools or anything else. That puts it in an entirely different category. The property may gain or lose value, but you don't know which or how much until you're ready to terminate the business... so, like your own house, it really isn't a liquid asset; it's closer to being inventory. Meanwhile, like inventory, you need to ""restock"" it on a fairly regular basis by maintaining it, finding tenants, and so on. And how much it returns depends strongly on how much effort you put into it in terms of selecting the right location and product in the first place, and in how you market yourself against all the other businesses offering near-equivalent product, and how you differentiate the product, and so on.  I think approaching it from that angle -- deciding whether you really want to be a business owner or keep all your money in more abstract investments, then deciding what businesses are interesting to you and running the numbers to see what they're likely to return as income, THEN making up your mind whether real estate is the winner from that group -- is likely to produce better decisions. Among other things, it helps you remember to focus on ALL the costs of the business. When doing the math, don't forget that income from the business is taxed at income rates, not investment rates. And don't forget that you're making a bet on the future of that neighborhood as well as the future of that house; changes in demographics or housing stock or business climate could all affect what rents you can charge as well as the value of the property, and not necessarily in the same direction. It may absolutely be the right place to put some of your money. It may not. Explore all the possible outcomes before making the bet, and decide whether you're willing to do the work needed to influence which ones are more likely." "Morningstar's definition of cash includes ""cash equivalents (fixed-income securities with a maturity of one year or less)"". So I'm guessing 81% of its holdings are short-term enough to fall into this category." You're correct in your implied point: Selling a cash secured put has less risk (in terms of both volatility and maximum loss) than buying the security outright. However, many brokerages don't allow cash-secured put writing in IRA accounts.   There are three reasons this tends to be the case: Well, it really doesn't make sense to pay for either in cash. For these purchases, unless you're super wealthy, you won't be paying it in full. If you were to pay in full, then I don't see any practical point to withdraw that money in cash. "I'm in the US, so there may be idiosyncrasies with UK taxes that I'm not familiar with, but here's how I've always treated stock I get as compensation.   Suppose the vested shares are worth X.  If I had X in cash, would I buy my company's stock as an investment?  Usually the answer is no, not because I think the stock will tank, but because there's better things I can do with that cash (pay off debt, unfortunately).  Therefore I sell the shares and use the cash for something else. You have stock options. So suppose the stock value is X but you can buy it for Y.  You can either: Therefore, the math is the same. If you had X in cash, would you buy your company's stock as an investment?  If so, then option 2 is best, because you can get X in stock for a lower cost. (Option 3 might be better if the gain on the stock will be taxed higher, but they're pretty much equivalent if there's no chance that the stock will drop below Y) If not, then option 4 is best since you will likely get more than X-Y from selling the options that by exercising them and selling the stock (since options have time value). If option 4 is not a possibility, then option 1 is best - you pocket X-Y as ""income"" and invest it however you see fit." In general, investors with a long period of time until they would need to withdraw the cash are best off holding mostly equities.  While the dividends that equities would return are less than the interest you would get in peer-to-peer lending, over long periods of time not only do you get the dividends from equity investment but the value of the stock will grow faster than  interest on loans. The higher returns from stocks, however, comes with more risk of big downturns.  Many people pull their investments out of stocks right after crashes which really hurts their long term returns.  So, in order to get the benefit of investing in stocks you need to be strong enough to continue to hold the stocks through the crash and into the recovery. As for which stocks to invest in, generally it is best to invest in low-fee index funds/etfs where you own a broad collection of stocks so that if (when) any one stock goes bust that your portfolio does not take much damage.  Try to own both international and domestic stocks to get good diversification.  The consensus recommends adding just a little bit of REITs and bonds to your investments, but for someone at 25 it might not be worth it yet. Warren Buffett had some good thoughts on index investing. What about in the case of a company with unexpectedly low cash (and therefore an inability to easily pay out dividends) but with a surplus of inventory?  Obviously the investors should receive some premium for that, because I think anyone would prefer cash, but there are certainly extreme circumstances where it might be appropriate. Have you looked into GnuCash? It lets you track your stock purchases, and grabs price updates. It's designed for double-entry accounting, but I think it could fit your use case. "Finance is ALL about obscure theoretical points. This one actually isn't even that obscure, kind of like a big gaping whole that nobody addresses.   So to address your ""minimum cash"" level point. That's what I'm working towards. Check this:  So if you are selling your company, and all of the potential buyers are public companies, you would adjust your working capital balances in your model to match the public company market benchmark (ie: days payable outstanding, days receivable outstanding). This would be some sort of ""added value"" that a public company would bring to the mix.    You should do the same for cash. You would benchmark what level of cash the comparable public companies hold (possibly as a % of revenue?), and apply that as the level of operating cash.   You're counter argument would be that some firms may choose to hold on to excess levels of cash for a period of time (Apple), skewing ""minimum cash levels"" upward. That's true, but over a period of time, investors would either (1). demand the excess cash back or (2) investors would sell shares because the company is not earning a sufficient return on equity. My second point is half baked and not fully thought through but it goes along with the idea that a company will dividend out excess cash if it cannot reach the hurdle rate demanded by investors.  Thank you for continuing the conversation with me, I think you're the only one that gets it." You can't have even a hundred dollars without it being invested somewhere. If it's cash, you're invested in some nation state's currency.       If that currency is USD, you have lost about 6% so far this year.       But what if you were in the stock market? It's been doing pretty well, no?       Thing is, American stocks are priced in American dollars. You have to put those variables together to see what a stock has really been doing. "It's worth pointing out that most ""cash"" deals are actually debt financed, at least in part. A quick review of the 8K tells us they plan on debt financing the entire transaction with some senior notes and not use any of the 15B on their BS. This is fairly typical these days because debt is cheaper then the foregone interest on cash." "For any sort of investment you need to understand your risks first. If you're going to put money into the stock or bond market I would get a hold of Graham's ""The Intelligent Investor"" first, or any other solid value investing book, and educate yourself on what the risks are. I can't speak about real estate investing but I am sure there are plenty of books describing risks and benefits of that as well. I could see inflation/deflation having an effect there but I think the biggest impact on the landlord front is quality of life in the area you are renting and the quality of the tenant you can get. One crazy tenant and you will be driven mad yourself. As for starting a business, one thing I would like to say is that money does not automatically make money. The business should be driven by a product or service that you can provide first, and the backing seed capital second. In my opinion you will have to put energy and time worth much more than the 100k into a business over time to make it successful so the availability of capital should not be the driving decision here. Hope this helps more than it confuses."