Corporate Cash Piles Grow to Record $1.45 Trillion, Moody’s Says

U.S. non-financial companies held a record $1.45 trillion in cash at the end of 2012, up 10 percent from the previous year, according to Moody’s Investors Service.

Apple Inc., Microsoft Corp., Google Inc. (GOOG), Pfizer Inc. and Cisco Systems Inc. (CSCO) maintain the five biggest cash balances, comprising $347 billion, or 24 percent of the total held by companies graded by Moody’s, analysts led by Richard Lane wrote in a report today. The richest industries are technology, healthcare and pharmaceutical, energy and consumer products, according to Moody’s.

Modest economic growth and tight cost controls enabled companies to record a 2 percent increase in revenue and unchanged cash flow from operations in the year ended September 2012, according to the report. High cash balances are positive credit factors and ensure companies can retire near-term maturing debt if the capital markets are disrupted and withstand deterioration in business conditions.

“There are a few key drivers to the record cash levels including good financial performance, steady growth for the aggregate of non-financial companies, a modest increase in revenues and supplementing funding needs through raising debt in a market last year that was very receptive to debt issuance,” Lane, senior vice president at Moody’s said in a telephone interview.

Economic Growth

The U.S. economy grew at a modest to moderate pace across most of the country, the Federal Reserve said in its Beige Book business survey. Expansion will accelerate every quarter to 2.8 percent at the beginning of next year, economists surveyed by Bloomberg predict.

Cash balances of non-financial companies have increased 77 percent from the $820 million in 2006, according to Moody’s. Investment-grade companies hold $1 trillion, or 81 percent of total cash, compared with $948 billion in 2011 and $624 billion in 2006. The four areas in which companies spend cash are acquisitions, dividends, share repurchases and capital expenditures.

“Some companies can have a sense that growing cash is ‘burning a hole in their pocket’ and cause them to do things that are probably not in the best interest of creating shareholder value, such as making expensive acquisitions and aggressive share repurchase activity,” Lane said.

Companies need to be able to manage cash so they are prepared to handle unforeseen macroeconomic or financial challenges, and “maintain the ability to invest in product development, research and development and capital expenditures, which are the foundation for companies to stay competitive over the long-term,” he said.

Overseas Cash

Overseas cash totals about $840 billion, or 58 percent of the cash balances, according to Moody’s.

“A significant portion of the cash is maintained overseas,” Lane said. “Absent any tax reform or a tax holiday, we believe overseas cash will continue to build and domestic cash will probably be stable over the next year. It’s quite possible cash balances will increase and set another record next year.”

The study included 1,141 companies for 2012. Banks, insurance companies, mutual funds and other financial entities are not included.

To contact the reporter on this story: Krista Giovacco in New York at kgiovacco1@bloomberg.net

To contact the editor responsible for this story: Faris Khan at fkhan33@bloomberg.net

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