Cash Management

Cash-Heavy Corporate Balance Sheets

In a new survey, more than half of midsize and large nonfinancial companies consider themselves net investors rather than net borrowers.
Stephen TaubDecember 2, 2004

Total corporate liquidity — defined as investments in short-term, marketable securities — now stands at roughly $4.7 trillion. That’s up more than 30 percent from the $3.6 trillion figure in 1999, according to The Wall Street Journal, citing estimates from Chicago consultancy Treasury Strategies Inc.

In a survey of more than 360 midsize and large nonfinancial companies, Treasury Strategies also found that more than half consider themselves net investors rather than net borrowers, the Journal reported. In other words, they have more short-term investments than short-term debt outstanding.

According to the survey, 36 percent of the money is invested in money markets; 21 percent in bonds and notes; 15 percent in commercial paper, “repurchase agreements” and certificates of deposit; and 9 percent in fixed-income and bond funds.

Why have companies accumulated all this cash? Record low interest rates have enabled them to lower their interest payments and retire longer-term debt; and an increasing number of service-oriented companies don’t need to lay out huge sums for new plants and equipment. The Journal also cited a Moody’s analyst who suggested that even those companies that might be considering capital expenditures are “holding back…because they fear they can’t compete with low-cost facilities abroad.”

While the savings rate for individual investors has fallen to an all-time low, added the paper, the corporate savings rate has attained a record high — nearly 2 percent of the gross domestic product.

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