# Excess Cash, a Valuation Adjustment

By Joseph Noko · 2024-05-08 · Source: https://josephnoko.com/excess-cash-a-valuation-adjustment/

> Firms use a portion of their cash and cash equivalents and investments as operating cash for the running of the business, and any cash beyond this amount is excess cash and a non-operating asset. As a rule of thumb, I assume that operating cash is equal to 5% of revenue, increasing or decreasing this requirement according to the firm’s operating profitability. Excess cash grants firms optionality, and protection against crisis, and, compounds as a consequence of a firm’s profitability.
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> *[“Excess Cash, an Invested Capital Adjustment”](https://josephnoko.com/excess-cash/), Joseph Noko*

As excess cash is not needed for operations, it can be distributed to shareholders, and so, I add it to my calculation of economic book value (EBV). In 2023, Meta Platforms had $61.48 billion in excess cash, which I added to my calculation of its EBV.