Nonfinancial businesses in the US now hold $1.7 trillion in cash or marketable securities, more than a third of it in the hands of just five companies, according to a Moody’s Investors Service report released Friday.
“While the concentration of cash among the top-rated cash holders continues to grow, so too has the portion held by the technology sector, which accounted for a record 46 percent of total cash in 2015, up from 41 percent in 2014”, Lane said. Much of that cash is held in foreign countries to avoid double taxation in the US, according to a report from credit rating company Moody’s.
The growing amount of corporate America’s cash is becoming more and more significant for investors with the stagnating profit growth and stalling stock market. Capital spending is the cash companies put into new plants and equipment with the hopes of driving higher profits in the future. That is a maneuver that can reduce a company’s number of shares outstanding and in theory should make each share more valuable.
All of the top 50 wealthiest corporations have at least $6.12 billion in cash.
There’s only so much companies can do with their giant wads of cash since a vast majority isn’t in the U.S. U.S. non-financial companies have $1.2 trillion in cash outside the U.S., up from $1.1 trillion in 2014 and $947 billion in 2013.
“This amount reflects the negative tax consequences of permanently repatriating money to the USA and the use of domestic cash for dividends, share buybacks and the majority of acquisitions”, Moody’s said.
Tech companies are leading the pack in hoarding cash, with Apple, Cisco, Microsoft, Oracle and Google parent Alphabet holding $504 billion on their balance sheets.
Earlier this year, anti-poverty charity Oxfam had estimated United States companies had $1.4tn in subsidiaries based offshore, while the $1.68tn that Moody’s estimates is being stashed by U.S. companies is a sum equivalent to the size of the Canadian economy. “At this stage in the political cycle and given strong differences on both sides of the aisle in Washington, we do not expect tax law reform that would prompt overseas cash repatriation”, Moody’s said.
The cash is increasingly concentrated among the top 50 hoarders, who held 67% of 2015’s total compared with 58% when the research began.
