The 1,000 largest publicly traded companies in the United States hold a collective $850 billion in cash, according to recent research by REL Consulting. The global working-capital consulting firm compiled this statistic by reviewing financial filings through June of this year.
This amount of cash is 6 percent more than last year and an astounding 75 percent more than those companies held in 2007.
During the last year, revenues for these companies increased and the additional cash that sales produced was kept on the books. Further, the companies collectively borrowed money, despite having record amounts of cash on hand. It’s a good idea to take advantage of low borrowing rates, but this behavior can only be described as hoarding. It presents several key problems.
The massive amount of cash these companies hoard is earning very little return. With rates so low, the cash is earning less than the rate of inflation. It is therefore losing instead of gaining value over time.
The hoarding also hurts suppliers to these top companies who keep cash instead of investing in equipment, new factories, new offices and other capital investments. Money that could be used to pay potential employees a salary instead sits unused.
The cash by itself isn’t the only problem. The REL Group study estimates that these companies also have excess working capital of approximately $780 billion. The study compares historical ratios of assets to liabilities with today’s ratios. In effect, companies would rather keep their assets as liquid as possible instead of deploy them.
Part of this trend is justifiable, given the uncertain near-term future of the U.S. economy, the European economy and the upcoming elections of 2012. Without clear direction, financial managers are unlikely to change this hoarding tendency.
But there's an opportunity for business owners in this situation. Companies want good investments with better returns. They are not necessarily happy to hoard cash.
Companies with a compelling business case for investment or a good price on an important raw material, finished good or service can capture cash from the top 1,000 companies. During other periods in our economy’s history, getting good ideas funded was difficult because there was no cash. Now, lenders have the money so it’s a matter of proving your case.
With $850 billion, you could pay 850,000 people a six-figure salary for a decade. Or you could invest $500,000 in capital into 1.7 million companies across the country. That investment could launch hundreds of new companies like Google, Facebook, SuccessFactors and Zynga.
This pile of money isn’t imaginary. It’s available right now for the taking if you can convince its stewards that you have a compelling case for putting it to productive use.