As the U.S. recovery limps along, companies are sitting on a record cash hoard, reports Moody’s Investors Service.
The rating agency says that the crop of U.S. non-financial companies it rates held a record US$1.65 trillion in cash as of mid-2014. “U.S. corporate cash balances continue to grow on the back of modest economic expansion,” says Richard Lane, a senior vice president at Moody’s.
“The pace of growth has slowed notably, however, from an average of 14% a year since 2009 to just 1% in the past six months, as companies spend more of the money they earn on capital investments, dividends, share repurchases and acquisitions,” Lane adds.
The top 50 holders of cash now account for over $1.0 trillion of the total, it reports; led by tech giants, Apple, Microsoft, Google, Cisco and Oracle, which hold a combined US$415 billion in cash, or 25% of the total corporate cash balance. Indeed, the tech sector accounts for US$564 billion, or 55%, of the total, followed by healthcare/pharmaceuticals, with $205 billion.
Moody’s says that it expects the concentration of cash holdings among the top 50 firms to level out as more companies increase shareholder distributions, prompted in part by activist investors.
Capital investments continue to consume the largest portion of cash flow from operations, averaging 57% in each of the past seven years, Lane says.
Moody’s also reports that about US$1 trillion, or 61% of total, cash is held overseas. “The amount of cash held overseas reflects the negative consequences of permanently repatriating money to the U.S., and in the absence of tax reform we expect the level to continue to grow,” Lane adds.
Finally, the rating agency says that, while the U.S. corporate cash pile has grown, so have debt levels. Through the first half of 2014, debt levels went up 5.3%, Moody’s says.