I mentioned earlier that corporate cash has been piling up since 1982. The number that is being bandied about (via the Fed) is that the 500 largest non-financial firms have $1.8 trillions dollars in cash.

I wasn’t sure how the Fed came up with their number, and I wanted to look at the data in greater detail. So enlisting our staff to help, we decided to do the math ourselves. On our Bloomberg terminal, we pulled up all of the “Cash & Equivalents.” Then, we eliminated 1) all banks stocks; 2) all financial firms. We wanted to show only corporate cash, and not client accounts.

What this generated was a somewhat different set of numbers than those of the Fed (See excel spreadsheet below). We found that 3,000 non-financial firms have $1.641 trillion dollars in cash and equivalents.

Other details:

-The top 50 firms are over half of this dollar amount, accounting for $823.642 billion dollars.

-The top 20 firms, ranging from Berkshire to United Health Group account for most of this — $635.386 billion dollars.

-The automakers are another anomaly — Ford (at #3) is showing $46.67 billion dollars in cash — but its against $66.668 billion in liabilities. Even GM’s bankrupt stub Liquidation Motors (# 17) is showing $14.194 billion in cash against $73.934 billion in debt.

-I’m not sure if we should exclude Berkshire Hathaway or GE as financials, but they accounted for $146.644 and $111.176 billion dollars respectively.

Lastly, this data only includes publicly traded companies, and excludes private or closely held firm. It also excludes private equity firms, VCs, and hedge funds (public or private).

>

Top 20 Cash Holdings

Spreadsheet:  Cash and equiv

>

UPDATE: December 22, 2010 3:49pm

Jim Bianco reports corporate cash is 7.3% — exactly what the historical median has been.

Category: Analysts, Federal Reserve, Valuation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

59 Responses to “Corporate Cash: Top 20 Firms = $635 Billion”

  1. Trevor says:

    Not sure when this snapshot was taken, but, even in January, Apple’s cash position was closer to twice that reported in the chart.

  2. Trevor:

    This reflects ONLY cash and equivalents; it does not include marketable securities

  3. Dow says:

    I posted this in the thread below but I guess I should have posted it up here.

    This is probably too late in the thread to get a reply but I will ask anyway.

    What exactly is ‘cash’ – US currency, money market, mutual funds, cash equivalents?? Commercial paper is considered a cash equivalent – is CP cash?

    Hedge Folios had a post on Cash & Cash Equivalents some time ago that I still occasionally refer to. Now, this isn’t my area of expertise so I would really like to better understand this post and the articles on ‘cash’ – and to do that I really need to understand what exactly is meant by ‘cash’

    Thank you!

  4. Minderbender says:

    Plenty of money out there – but not being used. Why not?

    Or in other words, is the problem a fiscal problem, that is, lack of incentive to invest, spend, move the money?

    Both businesses and consumers.

    Or to say, is the uncertainty a matter of perceived future disincentives, in form of lack of action of policy makers and elected officials failing to provide incentives that a the broad class of businesses and consumers could act on in short term?

  5. M says:

    Are these unusually high cash levels in real dollar terms? Is it a coincidence that the official metrics of inflation changed significantly at just the same time that cash appeared to accumulate on balance sheets? I’m sure tax considerations & so on play into this too but I don’t see how these numbers can be put in historical context without taking inflation into account.

  6. constantnormal says:

    Minderbender hits at something — this effects both corporations and consumers. I know I am personally carrying a lot higher cash than I normally would in our investable accounts, Barry has recently remarked that he is holding a lot of his clients funds in “cash”.

    Perhaps this reflects the extreme uncertainties in our society and economy at present. Of course, as BR has noted, this trend goes back to the 1980s. So while that may explain some of the current situation, it by no means explains the trend.

    What happened in the 1980s that changed the rules?

    The only thing that I can come up with it the Reagan tax cuts and changes to the rules of how we are taxed. One would have expected lower capital gains taxes to spur investment, not cash-hoarding, but sometimes the real world has a way of tripping one up with unexpected consequences. And correlation does not equal causation.

    Better stories are eagerly sought. This is a question worthy of pursuing.

  7. constantnormal says:

    @Trevor — when I look at the balance sheet info for for AAPL, I see cash and short-term investments of exactly $23.155B via Google Finance and Yahoo Finance for the quarter ending in March. Similar numbers stretch back into the past, albeit trending higher. Where are you getting your numbers from?

  8. financial says:

    It would be fascinating to a find out how this change in cash occurred, and if the concentration has changed. Clearly, the US tax system has made it worth while to keep cash on balance sheet. I just don’t buy the idea that American companies keep the cash on balance sheet because of (current) excess capacity. companies investment cycle is not weekly or monthly but much longer term.

    If memory serves it used to take between 18 and 30 months for a new machine tool (fabricator) to be installed. Something else is going on here. I wonder if the death of the dividend is to blame here? I remember that many more companies were paying dividend than they are today!

  9. constantnormal says:

    One of the better stories I have seen was dimm’s post from the earlier thread:

    Simple: inverse relationship with the interest rates.
    Create inflation, which will drive the interest rates up and the corporate cash pile will disappear.
    Businesses, just like individuals will save more when there is no inflation and spend more when cash is not a good store of value.

    THAT fits, especially since this began with Paul Volcker’s “breaking the back” of inflation … and was followed up by Greenspan’s continuous pressure on interest rates. If that IS in fact the operating mechanism here, we can expect to see Bernanke push cash to unimaginable heights.

  10. da bear says:

    Clearly, the smart money is betting on hyperinflation.

    da bear

    Buy one sarcasm button, get one sarcasm button at equal or lesser value ABSOLUTELY FREE!

  11. Trevor says:

    IIRC, it was Peter Oppenheimer at the last earnings conference, but, as Barry points out, I might have confused cash with cash+securities. The number has been increasing from about 25 to over 40 in the past couple of years. I have to believe that it must be the cash+securities number that has been rising.

  12. Transor Z says:

    Barry, maybe you should pull out all FIRE sector companies. Wellpoint and United Health are health insurers and ERIE is an insurer.

    But speaking of which, I’m wondering about something else here that I don’t know if anyone has brought up in the context of company cash reserves: self-insurance. The largest companies have been phasing out financial intermediaries for ~20 years now in favor of self-insurance/captives.

  13. Trevor says:

    Here’s just one reference (February), when I searched for “Apple cash position”

    http://blogs.barrons.com/techtraderdaily/2010/02/25/apple-we-love-our-cash-pile/

  14. constantnormal says:

    And if we are indeed moving into (or are already in) a deflationary environment, in such a situation, there is no better store of value than cash. Of course, NOBODY saw this coming three decades ago, so that is not how we arrived at this point — but it might explain why we are moving in the direction of more cash at the present.

  15. Jojo says:

    Clearly we must cut taxes so that corporations can get to $ONE trillion in cash!

  16. Mannwich says:

    But we all know, KNOW that corporations are WAY too heavily taxed in this country, right?

  17. constantnormal says:

    @Trevor

    Apple had about $18.5B in long-term investments at the end of the March 2010 quarter, so pairing that with their $23.155B in cash and short-term investments, and you arrive at a similar number ($41.6B) to that reported in Barrons.

    http://www.google.com/finance?q=NASDAQ:AAPL&fstype=ii

  18. Transor Z says:

    Business is getting fragmented in many different ways. This started in the 1970s with captives, then self-insurance – every hard market has specific ways to suck premium out of our business. Disintermediation will continue to challenge us in our ability to grow.

    The playing field is not level in our business: self-insureds don’t pay commissions or premium taxes and do not have any capital charges. Insurance companies have about a 20-point deficit in trying to compete for this business.

    Casualty Actuarial Society, Report of the CEO Advisory Task Force, Nov. 1, 1999
    http://www.casact.org/about/reports/ceo.pdf

  19. wally says:

    How many of those companies held similar amounts back in March, 2009, and sat on it… not even buying back their own stock at once-in-a generation prices?
    It seems they have no use for it and it also seems they have no intention to pay it out to shareholders.

  20. Trevor says:

    There seem to be so many sources, and uses of those sources, that we’re in a ‘lies, damned lies, and accounting’ situation. ;-)

  21. constantnormal says:

    Please don’t tax the corporations, as I don’t want to pay more for the stuff I buy, and if all corporations are taxed under the same rules, they will simply pass as much of those costs along to the customer as the market will bear.

    Besides, we need to CUT taxes for small corporations and businesses, and do so in a manner that will encourage them to hire (or at least not cut the few jobs they are maintaining). Of course the best medicine would be tax rebates limited to individuals and small businesses — places that would immediately spend the money, coupled with tax increases to high-income individuals targeting cash balances specifically. Of course, taxing short-term Treasuries would be akin to Uncle Sam shooting himself in the head …. :-)

    I don’t think we need to worry overly much about tax cuts to those lower income parties being spent by paying down debt, as 1) they have already been paying down debt as fast as they can and probably don’t have all that much remaining, and 2) after several years of meager new car sales (last year’s incentives notwithstanding) and reduced consumer spending in general, they will almost certainly put more of that money into general circulation than the big banks are doing.

    If you want it to have a larger impact, publicly announce a 3 year 100% tax rebate for all individuals with AGI’s under 100 grand and all joint tax filings of under $200K, along with a similar program for businesses with under $10M in earnings (just a guess, I have no idea of what a corresponding limit would be for corporations).

    THAT would put some spark in the economy. If you are worried about deficits, raise the taxes on those above 2X those lines to compensate … and remember, this is a 3-year experiment. At the end of that time, the changes expire and we see whether they worked or not.

    However, if we do not get this economy to show a heartbeat in the near future, we’re going to have to pronounce it and move on.

  22. jyc3 says:

    Several thoughts:

    1. Even if S&P 500 companies have this as cash it isn’t sitting under the CEO’s desk. It is being held in some kind of investment vehicle and is therefore being invested in some fashion. If they are holding it in T Bills it represents government spending which might be inefficient investment or current consumption. Of course to the extent it is being held at banks it might be held at the Fed in the form of excess reserves. If it is in commercial paper it is supporting the operations of other companies.

    2. How much of this cash is sitting offshore because it will get hit with a hefty tax bill if repatriated?

    3. How much of this cash doesn’t get distributed to shareholders because of dividend taxes? Will any of it get distributed before rates go up next year? Would shareholders spend it more wisely or invest it more aggressively than the companies that now hold it?

  23. globaleyes says:

    Cash is king, right? Globaleyes thinks corporate cash tracks inflation and that all that cash is their way to hedge against inflation, which is a scourge everyone knows about which is why it won’t happen again.

  24. The Curmudgeon says:

    OT: That great engine of the American economy, i.e., Apple’s consumer gadgetry, seems to have misfired a tad with the iPhone 4:

    Consumer Reports said it isn’t recommending Apple Inc. ’s iPhone 4 following tests confirming the handset has a hardware flaw that causes signal quality to degrade.

    http://www.bloomberg.com/news/2010-07-12/consumer-reports-says-it-doesn-t-recommend-apple-s-iphone-4.html

    Mannwich: Maybe that’s the top?

  25. The Curmudgeon says:

    Oops manny, didn’t see you’d already cited it…my bad.

  26. Mannwich says:

    No worries, Curm. I see we’re on the same page though!

  27. HEHEHE says:

    A more telling stat would be cash to debt. As you pointed out with the auto manufacturer’s you can have sizable cash dwarfed by debt.

  28. gopokes65 says:

    Seems relative to me. How much has corporate debt and liabilities increased since 1982? Big deal if corporate cash has increased if that cash is being used to offset debt or garbage on the books. What about the average corporate credit rating in 1982 vs. today? It’s all relative…

  29. Stochastically Heuristic says:

    Why is this news?

    It shouldn’t be.

    Corporate cash grew a steady rate between 3Q02 and 4Q05. Absent the flattening of cash positions from 2006 to early 2009, the $1.8t is actually on the historical trend line. Looking at the levels on a log scale and you see a nice steady trend line. Adjust for inflation and the resulting log graph is damn near flat.

    Further, since lending of all durations is down, we would expect corporations to increase their cash holdings since they can no longer rely on lines of credit.

    Bottom line, corporations have more cash then ever but it’s in line with trend growth. Let’s not try to divine something from this data that their isn’t.

  30. constantnormal says:

    If Apple only made iPhones, and the “flaw” was one that is not easily repaired/circumvented, then maybe the top would be in. However, as the iPhones amount to around a third of their business, and the other business segments are firing away, with Apple on tap to deliver yet another blowout quarter, I think that any pullback is likely to be temporary, and most likely, a buying opportunity.

    The HTC EVO has much more problematic and difficult-to-resolve issues, and nobody suggest that they have peaked and are now in decline.

  31. constantnormal says:

    speculation that the US is taxing corporate America to death can be quelled by actually looking at the comparative tax rates of the US vs other nations:

    http://en.wikipedia.org/wiki/Tax_rates_around_the_world

    It’s not a simple comparison, due to the use of flat tax systems by some nations, vs progressive tax systems by others (including the US). But it is clear that we are by no means a big taxer of corporations, and that neither are we giving away the store. It would be nice if there were a volume-weighted “average” tax rate listed for every nation, but that is not the case. It would also be nice to see the percentage of revenue that is excluded from taxation for each nation, by various loopholes in the respective tax codes.

    I know, actually looking at the numbers is so, unexciting, compared to ranting away about the poor multinationals, being taxed to death after winnowing their taxable income down to size through our custom-designed tax code loophole sieve, which manages to exclude a huge amount of revenue from ever being taxed at all.

  32. Mike in Nola says:

    Manny and Curm. I have great respect for the Jobs’ reality distortion field and the deep faith of his followers. They will still sell a sh!tload of them.

    I believe that CR is the only mainstream media outlet to make much of the flaw. The media is no better reporting tech than finance. Leo Laporte, who has owned all the iPhones and uses Macs and does podcasts on just about every platform and computer subject, said that he noticed the problem as soon as he got his. Yet there was no mention of it by the dwarf Mossberg or by Pogue. It’s just like the White House press corps: afraid of losing access.

    That’s not to say the the top is not in. Android is selling more phones than Apple now and, despite the derision, MS will probably put out a fairly strong contender. All this is going to put pricing pressure on Apple.

  33. Mike in Nola says:

    On the cash issue, ZH had an interesting take on Alcoa’s beating expectations and low Capex spending.

    http://feedproxy.google.com/~r/zerohedge/feed/~3/3X__O2JcsI4/digging-behind-alcoas-optimism-company-posts-second-lowest-quarterly-capex-spend-years

  34. Mike C says:

    The HTC EVO has much more problematic and difficult-to-resolve issues, and nobody suggest that they have peaked and are now in decline.

    I’ve got one, and you get some apps crashing from time to time, and the battery drains pretty fast, but haven’t noticed anything else super problematic

  35. Jojo says:

    For those in favor of the elimination of corporate taxation, what do you propose replacing that revenue stream with?

    And try to be realistic with something that might actually have a chance at getting passed in Congress and signed by the president.

  36. constantnormal says:

    @Transor Z 4:06 pm

    It may be that the long-term consequences of ZIRP may put a lot of the casualty insurance industry out of business. If one looks at the what it costs to insure a large multinational for $10B (and I have no clue here, but let’s assume $100M per year, which admittedly seems high, unless we’re talking about BP) and compares it to the cost of carrying $10B in cash, the savings from avoiding the insurance premium plus the amount earned in short-term Treasuries (tiny, but not zero, not on $10B) might justify doing so — especially if there were any doubts whatsoever about the ability of one’s insurer to withstand another credit crisis.

    If interest rates were a lot higher, it might be more profitable to tie up the funds in longer-term Treasuries, but since that is not the case, why not keep things as liquid as possible and cut back on payments to insurers?

  37. constantnormal says:

    @Mike in Nola 6:07 pm

    I guess that’s how one spells a shrinking economy … D – E – F – L – A – T – I – O – N

    Golly, what’s Ben gonna do?

  38. KentWillard says:

    Scaled by dollars, inflation and population growth cause most time series to have a steady upward progression. Would be more illuminating to show cash relative to something else in dollars, such as debt, assets, or inventory (as FT did).

    The Fed bought $1.1 T of MBS last year from commercial banks, and it is still sitting as surplus reserves at the Fed, doing nothing. Is this $1.8T more of the same? Does uncertainty mean that savings does not equal investment?

  39. Trevor says:

    Not wishing to dwell too much on the OT part of the thread, this may interest those who want to understand the antenna issues of the iPhone 4: http://blogs.forbes.com/investor/2010/07/12/the-iphone-4-antenna-unravelled/ The upshot is that just as in the politic shenanigans wrt the economy, it’s an issue the ‘other side’ can push (with just little enough detail) to spread FUD. Classic competitive marketing, really. Doubtless, Apple will overcome this issue as they have others in the past. I would not expect this revenue stream to seriously affect the company’s bottom line, particularly since their production has been having trouble keeping up with the demand (ditto the iPad).

  40. Mike in Nola says:

    Trevor: As I said, they will keep selling lots. But can they maintain their lofty PE ratio? That’s really the big determinant of the stock price. It’s hard to keep growing earnings at the same percentage rate as you get bigger.

    PE’s of the leading tech companies:

    AAPL 25.5
    Goog 18.9
    Intel 18.6
    MSFT: 12.4
    HP 10.7

    I think we’ve all seen that there are certain darlings of the market during different times. If the spell is broken and Apple’s PE only pulls back to something like Goog/Intel, the stock price could drop 25% without any decrease in earnings.

  41. cognos says:

    So its silly to call something “cash” and something else “marketable securities” and not see them as the SAME!

    Its just as silly to account for “cash” of $100M is a company holds a net current asset position of $0. Right?

    So, why doesnt someone do this the right way… which is to go through and make an estimate of “excess cash” for each company?

    Some simple judgements should suffice.

    However, I might note that MSFT has NEVER had a losing Q, barely even showed a revenue downturn in 2008, and has massive extra expenses it could cut. In this light… it being the MOST STABLE company in existence today… it might carry $100B in debt at a blended pre-tax rate of 2-3%. Therefore… it might have only $50B in actual balance sheet excess cash… but could be said to have $150B in excess cash in a financial sense.

    True tragedy, companies at 10x post-tax PE… when they could borrow at sub-3% pre tax. Silly execs.

  42. Trevor says:

    @Mike

    I came back into the market last year after many years out. I had decided I knew Apple well enough that it was worth much of my money. FWIW, I wanted to invest rather than trade. I was very surprised to discover how the market looked at Apple (its $ volume has been the highest on the Nasdaq for almost all days since October, etc., etc.). I just liked their business model, management, and previous performances.

    As for PEs, you might want try the sums again after you’ve taken the cash out of the equation. IIRC, this results in Apple having a PE of about 14. Maybe even subtract liabilities from the equation, too. I’m sure that would likely change the PEs of the other companies listed, but not change Apple’s PE much. Apple’s is a profit model, not a market share model, which I strongly suspect is the reason it has so much cash in the bank (that and, for the most part, excellent designs).

  43. Zed_ says:

    Never mind taxes, how about you take the FP graph, overlay it with real-wages and productivity… and see if you can construct a narrative :)

  44. Jack says:

    It’s comforting to know that my health insurer has cash.

  45. dimm says:

    @ constantnormal
    “Please don’t tax the corporations, as I don’t want to pay more for the stuff I buy.”

    The price of any goods or services has nothing to do with their cost, so raising taxes does not mean that you’ll end up paying more.
    There are many examples, but lets use a bottle of water. It costs about a dollar in the supermarket, $2 at the mall. The cost to produce and distribute is probably not more than 5 -10 cents. The rest is profit. If you tax the corporation that sells water they might raise the price and reduce the sales volume or just accept the smaller margin and sell you the bottle at the same price.

  46. Mike in Nola says:

    dimm: reminds me of what my daughter told me recently. She was staying with her great aunt who is an inveterate Faux News watcher. Someone was on tallking about how we shouldn’t make BP pay for the cleanup because we would wind up paying more for gas. The aunt and her son were eating this up. My daughter posed the question of who would pay for the cleanup if BP didn’t.

  47. philipat says:

    It would be (Impossible but) interesting to know how much of this cash has been transfer priced into tax havens “awaiting” a suitable repatriation point such as another amnesty etc.?

  48. dimm says:

    @Mike in Nola
    It is amazing that kids have better grasp of reality than about 50% of the American voters and almost half of our representatives. I guess logic develops early to help figure out the world. Once kids go to school they are not supposed to think, but to memorize. Gradually they leave others to think for them and the results are obvious in this country.
    Can’t agree more about Faux News. I do not watch them since more viewers = more commercials = more money for disinformation, hatred and so on. Jon Stewart at the Daily Show gives me the “highlights”.

  49. Geoff says:

    I think by the time you got through the “other details,” you must have realized that the cash hoard isn’t as impressive as it seems at first blush. As you allude to, Berkshire, GE and Ford are all really using their cash in order to collateralize risky activities in reinsurance, leveraged finance, and auto lending, respectively. If you net those three companies out, the total goes down by about half. Then if you bring this total back to some sort of money supply-adjusted real number (with M2 up about 8x since the early 1980s) the cash hoards don’t look so big.

    However, if we get a real steep market correction, then the US companies will finally start looking like the Japanese net-nets.

  50. PhilB says:

    Barry:

    Take the analysis one step further so we can attempt to draw some conclusions. Put up a chart of the cash & equivalents holdings over the last decade.

    A one point reference without historical context leaves us wanting.

  51. Jim67545 says:

    So, you looked at 3,000 companies and the top 20 or 50 account for most or all of the cash? What about the other 2,950? The starting question was whether there is a inverted relationship between a lack of investment and hiring and cash position. If the vast majority of the companies (2,950) have comparatively little of the cash and making the wild assumption that the 2,950 companies would in total invest or hire more than the top 50, perhaps there IS a relationship between LOW cash balances and lack of investment/hiring.

    Why low cash balances for these companies? Lack of cash flow? Use of cash for some purpose? ??

  52. [...] Are corporate cash levels all that elevated?  (Lex also Big Picture) [...]

  53. [...] you’re in the business of selling to big businesses with massive hoards of cash, I’m afraid you’re out of [...]

  54. onewhoknows says:

    I have no idea who compiled the information for these cash holdings but the figure shown for Berkshire Hathaway is totally ludicrous. Their cash position on March 31, 2010 was between 25 and 30 billion dollars.

  55. A little outfit called Bloomberg Data services — perhaps you may have heard of them?

    And their cash position is not a guess plus or minus $5 billion spread — according to their most recent 10Q, it is exactly $146,644,992,000.

  56. Dennis the menace says:

    You should change this guys name from “onewhoknows” to onewhothinksheknowsbutactuallydoesnt

  57. [...] the point about employers are “struggling to stabilize their financial situation” when 3,000 non-financial firms hold an estimated $1.6 trillion (yes, trillion with a “T”) in cash and equivalents, but I want to focus back on one [...]

  58. [...] the point about employers are “struggling to stabilize their financial situation” when 3,000 non-financial firms hold an estimated $1.6 trillion (yes, trillion with a “T”) in cash and equivalents, but I want to focus back on one [...]