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Corporate cash hoard in the trillions: Moody's

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U.S. non-financial companies sat on a whopping $1.2-trillion (U.S.) in cash and short-term liquid investments at the end of 2010, according to Moody's. That's up 11 per cent from the $1.1-trillion at the end of 2009

These cash levels are probably only going to increase. Moody's review ends at December 31, at which Apple Inc.'s cash and short-term investments balance totalled $60-billion. When it reported quarterly earnings two weeks ago, that balance had climbed to $78-billion.

Because the value of liquid assets is so high, U.S. companies' debt-to-cash ratios hit a five-year low of 3.06 times in 2010, despite extremely low interest rates and big corporate debt issuance, particularly last summer.

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Moody's estimates that about half of the cash balances, or $600-billion, are housed overseas. (Moody's was able to calculate this because some of the biggest firms actual disclose their overseas totals, while others disclosed it in private to Moody's.) The value makes sense because international profits have been driving this quarter's earnings performance and firms have been keeping this money off-shore so that they don't have to pay U.S. tax rates. (Earnings from foreign subsidiaries aren't taxed until they are repatriated to the U.S.)

Much like any wealth distribution, a large chunk of the cash hoard is held by a relatively small number of companies. Moody's calculated that the 20 top holders of cash account for $488-billion of the $1.2-trillion total. These firms include the likes of Apple Inc., Microsoft Corp. and Pfizer Inc. Technology firms held the most cash than any other U.S. industry.

But really, all firms are at fault, because corporate profits have been widespread. "Between 2009 and 2010, our corporate universe recorded an 11.7 per cent increase in revenues, a 45 per cent increase in operating income and a 24 per cent increase in funds from operations."

All of this with a 9.2 per cent unemployment rate south of the border.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

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