Inquiring minds are seeing gobs of cash at American corporations and this is a problem. You see, in a healthy economy, the only industry that wants to be sitting on a good chunk of cash is the Banking sector. Why? It is their product. Otherwise, since money is not other company’s product, the last thing you want is it sitting there not working:
It’s no secret that components of the S&P 500 are sitting on a large quantity of cash, with U.S. companies coming out of a recession that demanded drastic cost-cutting that resulted in better efficiency and profitability as the economy started to recover. The trend isn’t limited to American shores though, and for all those piles of dollars sitting on U.S. balance sheets there are also hoards of euros, yuan, yen and Brazilian reais waiting to be deployed.
A recent research note from Standard & Poor’s Valuation and Risk Strategies team lays out the 50 largest corporate cash holdings (excluding financials) and finds that of the $1.1 trillion (nearly equal to the amount held by the S&P 500), 58% is held outside the U.S., led by Toyota’s $48.3 billion. (GE is the U.S. leader with $78.4 billion.)
S&P’s Richard Peterson points out that many of the same forces at play for American companies have also been seen abroad, and companies like China Mobile ($46.8 billion) and Petrobras ($34.7 billion) are facing the same decisions as their U.S. counterparts like Google ($33.4 billion) or Apple ($25.6 billion) when it comes to how best to deliver for shareholders.
As Peterson sees it, there is the often talked about “triple play” – buying back shares, instituting or raising a dividend, making acquisitions – and the fourth option of paying down debt. The climbing cash levels on corporate balance sheets makes it likely that all four will increase in 2011.
If this were ‘Business’ Groundhog day, the data shows that economic winter will continue.
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