« Be Sure and Check Out This Week’s Carnival of Personal Finance | Main | Reader Question on How to Determine How Your Investments Are Doing »
Companies Are Stockpiling Cash
By JLP | November 2, 2009
Interesting article in this morning’s WSJ about how companies are stockpiling cash:
In the second quarter, the 500 largest nonfinancial U.S. firms, by total assets, held about $994 billion in cash and short-term investments, or 9.8% of their assets, according a Wall Street Journal analysis of corporate filings. That is up from $846 billion, or 7.9% of assets, a year earlier.
The trend appears to have continued in the third quarter, despite an improving economy. Of those 500 companies, 248 have reported third-quarter results. Their cash increased to 11.1% of assets, from 10.1% in the second quarter.
The article goes on to talk about how this is both a blessing and a curse. It’s a blessing in that companies have cash on hand, at the ready, for capital spending or hiring. The downside is that hoarded cash isn’t being used to help jumpstart the economy.
Large cash balances from an investor’s viewpoint can be both good and bad. They are good if the money is used wisely and bad if they do something stupid like paying too much in an acquisition or “deworsification” as Peter Lynch used to call it.
Anyway, on the whole, I would take the increased cash position of companies as a good sign.
Topics: Investing | 3 Comments »
November 2nd, 2009 at 12:53 pm
JLP…I agree that this is a good sign (circumstances considered). However, I can’t help but think the ‘extra’ cash being reserved is a direct result of the lost wages suffered by so many individuals. I guess you win some and lose some.
November 2nd, 2009 at 4:54 pm
Increased cash is good for investors. It will help these companies buy smaller companies and increase or at least continue to offer dividends. Companies with cash are the ones that stay alive and thrive in this type of economy.
November 2nd, 2009 at 5:38 pm
It would be interesting to know whether this cash is held as an “emergency fund”, or as a war-chest. Looking at the article, Alcoa’s cash is an emergency fund (looks like a prediction for slow economic growth). Whereas the technology companies have acquisition war-chests.
What Google is doing, I have no idea: 58% of assets is cash ($22 billion): They could buy 37 countries with that much cash!!