America's largest companies hold $994 billion in cash
Filed under: Investing, Earnings, IBM, Google , Microsoft, Apple, McDonald's
The 500 largest non-financial companies in the U.S. hold $994 billion in cash and short-term investments, up about 8 percent from last year, according to an exclusive study conducted by The Wall Street Journal. Some of the largest tech companies like Google (GOOG) and Apple (AAPL) have tens of billions on their balance sheets.
There is nothing new about corporations holding high cash balances during a recession, since companies want to maintain a buffer against falling sales and earnings losses. But it raises the question of what will happen to the cash as the economy recovers.
There are a few possibilities:
1. The companies could simply hold the money and earn 1 percent on it. Apple in particular has signaled that it has no plans for its cash, and it rarely makes acquisitions. Apple generates more cash each quarter, but its board has no duty to do anything other than put the money in the bank, which does not do shareholders any favors.
2. Some firms will begin share buybacks. IBM (IBM) recently said it would increase its program by $5 billion. Some companies like McDonald's (MCD) have been aggressively buying their own shares for years. Fewer shares means better earnings per share (EPS). In theory, that should drive up a firm's share price.
3. Dividend hikes, particularly special dividends, have an immediate benefit for shareholders. Several years ago, Microsoft (MSFT) distributed billions of dollars of its cash balance to stockholders as a one-time event.
4. M&A activity is a use of cash that can cut two ways. The value of some buyout targets is still low because of the recession, which means that there are bargains. The tech sector, in particular, has been a hotbed of M&A. The flip side is that acquisitions often take up management's time and present integration challenges, so many buyouts end up dragging earnings down.
With nearly $1 trillion on big company balance sheets, one thing is certain: All that money is not going to just sit there unused.
Douglas A. McIntyre is an editor at 24/7 Wall St.
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Reader Comments (Page 1 of 4)
11-02-2009 @ 7:03AM
DICK JENSEN said...
CAN'T BLAME THEM. IT IS AS SIMPLE AS CORRECTING 10% UNEMPLOYMENT, ILLEGAL ALIENS, TAXES.
Reply
11-02-2009 @ 12:56PM
jy said...
i think giving all the gold to egypt for straight cash to pay off our defecit and then legalizing all drugs to keep us from never going into defecit again is what we are doing right this moment without doing it or at least one way.
11-02-2009 @ 3:48PM
dan said...
Our government has orchestrated a trade off, a trade of middle class jobs for low cost junk from the 3rd world, resulting in a stunning decline in wealth for them, and even more stunning increase in wealth for the upper 5%, the ones that had their taxes decreased the most the last 30 years, according to them, so that the wealth would trickle down. The question is has it happened for you??????????????????????
11-02-2009 @ 7:11AM
Don said...
My question is this, If companies have all of this cash and the market is such a wonderful buying opportunity as CNBC says then why, why are not these companies buying back their own stock ?????? Just wondering.
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11-02-2009 @ 10:38AM
Doc said...
Gee Don, you don't think MSNBC or any of the other mainstream media could be lying about the state of the economy do you? You don't think business know more about which way the economy is headed than the government shills do you? Surely we can trust the Media Shills who led us to the enlightenment of Obama and his Socialist Renewal of our country......
Or maybe not....
11-02-2009 @ 5:02PM
g said...
because they are liers, cheats and thieves just guessing?and they think most of us are stupid!!!
11-02-2009 @ 8:52AM
Curious Cat said...
Question for author:
What is the currency mix of the stash?
Is some of that money in euros, renminbis, australian dollars?
One would think that many of these cash rich companies have international operarions (imagine apple).
Thanks in advance, Doug.
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11-02-2009 @ 8:00AM
kevin said...
Don...If you had read the article, you would know the answer.
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11-02-2009 @ 8:11AM
R. C. Jackman said...
Actually the institution money is invested and hence still in circulation. But if the institutions would simply hold their money, that would keep the money out of circulation and hence hold back the inflation. The government has printed too much money, and as soon as it gets into active circulation, we will feel the effects of the resulting inflation.
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11-02-2009 @ 9:16AM
agt4085 said...
Need to read this story in other terms. The 500 largest non-financial companies don't even have as much as the first trillion dollar stimulus. Doesn't sound that good now does it. That means the banks really didn't have any money left till they government cheese at 0%. When the dollar goes worthless due to inflation and these companies take huge bonuses. They will 0 cash. Just divide 1 trillion buy 500 and the answer won't be as grandiose as they try to make it.
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11-02-2009 @ 10:14AM
RDB said...
What's wrong with good old fashoned paying of dividends?
Paying dividends gives the investor a choice to reinvest in the company, use the funds to live, or whatever he or she chooses.
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11-02-2009 @ 10:29AM
jeff said...
The BIG BANKS and their FED have destroyed the economy so they can get richer!! Why arent they seizing the assets of the BIG executives at CIT and using them to pay this debt?? Why havent OBAMA and CONGRESS made derivatives and Hege funds ILLEGAL since they are the main cause of this recession soon to become a depression if nothing is done!! Have a link to Frontline at my Webpage at http://www.jolietjeff.com and you should use it to Watch WARNING SIGNS which gives much of the REAL INFORMATION including how the economy is a huge pyramid scheme run by the BANKS ... the economy is ready to collapse unless we all get educated and elect some 3rd party candidates now!!
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11-02-2009 @ 1:21PM
No Confidence Vote said...
At least re-register as an Independent before the 2010 midterms. A serious lost "base" in this two party system will tell them that they we aren't buying the empty rhetoric.
11-02-2009 @ 10:50AM
W. C. Peterson said...
Simple logic: 'Conservative' Republicans want Obama to fail. 'Conservative' Republicans own or run most of the businesses in the United States. 'Conservative' Republicans make up the US Chamber of Commerce. So, why would they want to lessen the impact of the depression they caused by hiring more people and spending some of the money they're sitting on. They would rather let the country go down the drain than help when their help is needed.
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11-02-2009 @ 11:36AM
flamingrose40 said...
OMG you just made my point. The liberals see ANYONE making a profit as the enemy! Or being selfish that they dont go more "for the greater good" let alone that most of these companies give more in charities than ANY liberal could even comprehend. But in their minds...They owe it to the country to do more!! Truth is, why would they give more money to the govt to hand out to who THEY think deserves it...the govt has never proven itself capable of determining who REALLY needs help, they tend to keep helping their friends. And, I do believe if you really did a little research, before doing your Obama imitation of the blame game. You would find that my statement about the amount of money and time, the conservative corporations donate blows any liberal donations out of the water. Contrary to the brainwashing you get from the Obama media...companies making profits...thats not a bad thing...those companies employ people. Also, think about it, if there are soooooooo many conservative companies that are making those kinds of profits, shouldnt that tell you something about that conservatives know how to handle money better.....now that I think of it...name one hugely successful company owned by a liberal!! I coundnt think of one! Except Michael Moore but he doesnt count, as he is the epitome of a capitalist, but blasts capitalism to make his money.
11-02-2009 @ 11:59AM
DoNuthin said...
Truth is, most big business people are apolitical. They play both sides by contributing to the campaigns of both parties. That guarantees access to the power regardless of who wins. Some seem to think that may have been what got AIG its big payoff, the $100,000+ each they contributed to Obama and Dodd's campaigns in the past. Surely not.
11-02-2009 @ 1:20PM
mma600psi said...
HAHAH.....you gotta be kidding me!?!? companies are taking huge losses to make a point?
I have one point to make: You're an idiot
11-02-2009 @ 6:20PM
Gere said...
W.C. these companies are in business to make a profit, not provide for the common good as yourseeming to suggest they should. I guess that when they ran out of money giving theirs away it would be a better thing to you? The fact is that everyone I know is seeking to attain the American dream which is by and large to attain wealth and a better standard of living. Unfortuinately we are getting treated to the exact opposite under Obama and the progressives who seek to divide and conquer labeling the hardesyt workers and prudent as the oft despised, and thus evil, rich. Its only leading us down the same path that Chavez has walked Nicaragua onto, the Third World. Why do you think there is such an uptick in Nicaraguan illegal aliens these past ten years?
11-02-2009 @ 11:32AM
flamingrose40 said...
With nearly $1 trillion on big company balance sheets, one thing is certain: All that money is not going to just sit there unused.---------This line of the article caught my attention most! Why do I get the feeling the Govt sees these companies making a profit, and having cash, money THEY can use "for the greater good"...Maybe its just me,but does anyone else see an eerie chance for the govt to create a "crisis" and tap into that trillion.
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11-02-2009 @ 4:44PM
bobby said...
Rose, I got the same sinking feeling from that comment. I am afraid that Obama's Czar will somehow take that cash for their own use, probably the Health Care Program.
With that trillion and another couple of trillion in taxes and debt, it will be "deficit negative".