American Companies Sitting on a $1.45-T+ “Cash Pile”
Corporate cash is at record high marks as increased debt is offsetting net operating cash outflows.
America’s largest corporations are sitting on a historically large amount of Green Money these days.
Cash and short-term investments on the S&P 500 sector companies’ balance sheets have risen to 10-year highs in Q-1 of Y 2016, totaling $1.45-T, according to a new report from Factset.
This does not include financial companies, as those companies are obligated to hold certain amounts of cash and debt on their balance sheets for regulatory purposes.
Tech companies lead the way with the most, with Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) holding $105.6-B and $75.3-B, respectively. If longer term investments are included, another tech company, Apple (NASDAQ:AAPL), takes the lead, with $232.9-B.
The Information Technology (IT) sector in general is holding nearly $604-B.
Corporations are deploying some of that money, as some spending money on their operations. In Q-1, S&P 500 companies (ex-financials) spent $141.3-B on capital expenditures, but this was down 4.9% from the same frame in Y 2015.
R&D spending led by tech companies is at an all-time high of $263.7-B in the TTM (trailing twelve months).
Amazon (NASDAQ:AMZN) at $13-B, Alphabet at $12.9-B, and Intel (NASDAQ:INTC) at $12.3-B were the top spenders during this frame.
Companies continue to return massive amounts of money to shareholders in the forms of stock buybacks and dividends.
However, operating free cash-flow is flat Y-Y, and stands at 7.7% below the 10-year average for the index.
The Big Q: How can cash levels be increasing, while money inflow goes down and cash outlays go up?
The Big A: Debt
Debt has been increasing more rapidly than cash. The Y-Y growth rate for cash was 5.7%, but debt grew 9.9%.
This means that the (C/DR (cash to debt ratio) has also fallen to 34.7%, which is below the 10-year average of 36%. The total amount of debt on non-financial company balance sheets is $4.2-T.
There are a number of reasons for this increase in debt.
Many companies are taking advantage of historically low interest rates.
Many multinationals hold their Green Money overseas to avoid paying US tax on it, despite having most of their expenses in the US, meaning they have to take out debt in the US.
However, given that the C/DR is falling, this is not sustainable. Companies appear to already know what they are planning to give up as well.
CAPEX may have been near its 10-year highs, but it actually fell 7.6% Y-Y during the TTM frame.
“One of the ongoing trends in the S&P 500 (ex-financials) index has been less spending on capital expenditures and more spending on shareholder distributions,” Factset reported.
Have a terrific 4th of July Holiday weekend
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