Cash Concentrated Among Investment-Grade

Tech and healthcare companies have biggest cash hoards, S&P study shows.

U.S. companies continue to hold record amounts of cash, according to a study by Standard & Poor’s Ratings Services, and the high levels show no sign of dropping. Nonfinancial corporations rated by Standard & Poor’s held $1.25 trillion in cash and short-term investments at the end of 2011, up 41% from the level at the end of 2006. Their ratio of cash and short-term investments to total assets increased to more than 8.6% from 7% between 2006 and 2008.

The increase in liquidity was greater for investment-grade companies, though speculative-grade issuers increased their cash reserves as well. Cash and equivalents recorded by investment-grade issuers showed a compound annual growth rate (CAGR) of 8.7% over the past five years, while speculative-grade issuers recorded a 2.3% CAGR.

Companies that are rated A or higher held 54% of the total cash and short-term investments as of 2011, even though they comprise only 10% of issuers. Companies rated B and lower held only 10% of the cash and short-term investments, though they make up 46% of issuers.

Technology and healthcare companies hold the most cash, according to S&P, although the auto sector has built up its cash position and now holds 7% of the total corporate cash supply. Auto companies traditionally need more cash to deal with sharp downturns in production, and the sector hase increased its cash balances from 16% to 19% of total assets in the past five years. The healthcare sector holds 14% of its total assets in cash, while the technology sector holds 24%.

The increase in technology companies’ liquidity reflects a growth in overseas cash, which made up 91% of total cash balances in 2011, up from 68% in 2006, according to the report. Cisco, for example, has chosen to issue debt to maintain its domestic supply of cash rather than repatriate cash from overseas and subject the funds to U.S. tax rates that can be as high as 35%.

The 10 companies in the study that had the most cash held 77% of their cash overseas. According to the study, given the high U.S. tax rate, acquisitions of foreign companies have become a more efficient use of capital, such as Microsoft’s $8.5 billion acquisition of Skype.

Only about 9% of the U.S. consumer products companies analyzed held more than $1 billion in cash and equivalents at the end of 2011. Coca-Cola posted the largest increase among consumer products companies, building its cash base from $3 billion at the end of 2006 to $14 billion at the end of 2011.

Companies are likely to hang on to their cash as they ride out economic woes in the U.S., Europe and China. S&P projects that liquidity among investment-grade issuers may decline in the long term, though, especially if Congress were to give companies a break on repatriation taxes, as it did in 2004 with the American Jobs Creation Act.


For an update on the latest information on corporate cash from the Fed’s Flow of Funds, see Corporate Cash Revised Lower. For a look at what IRS data say about global cash holdings, see Corporate Cash Even Bigger? And for a look at how companies are investing their short-term cash, read No Safe Harbor for Cash.





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