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Huge Corporate Cash Hoards

This post first appeared on The Activist Investor.

We’ve followed the cash holdings of the largest US companies for some time now. Back in 2011 we claimed these holdings exacerbated the Great Recession, and then analyzed those balances. We updated this analysis each year since then.

It’s time once again to see who leads big companies in hoarding cash. This update comes after the Federal Reserve provided its economy-wide estimate of corporate cash (see Table B.103, p.135). It reports that as of the end of 2015, US non-financial businesses held $2.0 trillion of cash and other liquid assets, about the same as 2014 but up from $1.7 trillion when we first looked in 2011 (line 7, adjusted for lines 22, 23, and 24).

The ten companies with the largest cash and liquid asset balances account for $912 billion, or almost half of the US total. If we adjust these balances for debt, these balances become almost $600 billion, or almost 30% of the US total.

Here’s the top ten as of 12/31/15 (figures in $ billion):

The figure shown is total cash and investments as of 12/31/15 for each company. This figure is roughly comparable to the Federal Reserve estimate for the entire economy, seeing as it includes cash and marketable securities. These companies sit on almost one trillion dollars in liquidity.

In fairness, it’s not all liquid, and management needs the cash to run the business (right?). So, let’s reduce the balances to reflect what the companies owe. And, we can consider what these companies earn each year in cash (free cash flow), and the cash they pay to investors (total dividends).

We get a somewhat different top ten:

Net cash is cash and total investments from above, net of debt, as of 12/31/15. Dividend and free cash flow are for 2015.


Some interesting things happen with this perspective:


  1. GE has significant debt from their financial services businesses, so their cash hoard is much lower, and they fall off the list.

  2. Facebook sits comfortably on the list at number 9, after only four years as a public company.

  3. It’s all tech and pharma except Berkshire Hathaway, and we don’t quite know what to do with it since much (but hardly most) of its cash sits at its GEICO insurance subsidiary.

  4. After Berkshire, Apple has almost twice the net cash as the next largest company, Microsoft.

  5. Apple and some of the other technology firms (Microsoft, Alphabet, Facebook) have minimal debt loads relative to their cash, so adjusting for debt hardly changes the rankings at the top of the list.

  6. Yahoo has a strong balance sheet and awful income statement, as bidders have started to learn. Like Berkshire, we don’t quite know what to do with it since much of its value comes from investments in Alibaba and Yahoo! Japan.

  7. Six of the companies now pay a dividend, but Johnson & Johnson is the only one whose dividend even approaches its free cash flow figure.

Of course, these companies also repurchase shares. As we  with Apple, these programs don’t come close to sending back enough cash to investors.

These ten companies sit on a cash hoard of almost $600 billion. They will likely add a decent portion of their almost $150 billion in free cash flow to that hoard in a year’s time (they won’t invest every last penny of that cash flow back into their businesses). Yet, they plan to return to investors as dividends barely one-quarter of a year’s cash flow, or less than a tenth of the cash that they already have on-hand.

As suggested earlier, let’s split it with them. They could easily pay $300 billion to investors, from current cash reserves, without impairing investment. What’s holding them back?