US Companies Hoarding Cash

Companies are spending money on materials, labor and overhead based on demand.  They reduce spending if demand drops and increase spending if demand rises.

Company revenue comes from sales of products and services. Public companies also get revenue from selling their stock.

If their stock price is up, public companies put cash to use and buy back their stock.  If their stock price is low, they sell their stock and work to increase profit or value.

Companies invest their own money to improve processes, automate and improve products. Companies invest in equipment, engineering, infrastructure and acquisitions. 

Companies funneled record amounts of cash to stock buybacks, dividends, capital spending and acquisitions last year. As a result, U.S. corporate cash holdings fell to a three-year low of $1.685 trillion in 2018, according to a report from Moody's Investors Service Inc.- Jun 10, 2019

The cash hoarding, which began in response to jurisdictional tax disparities and global economic uncertainty following the Great Recession, accelerated over the past decade as large U.S. corporations maneuvered to accumulate profits offshore in lieu of repatriating the funds and taking a tax hit. The top 1% now hold over $1 trillion in cash, double the $510 billion reported just five years ago.

The technology sector leads all industries with 44%, or over $800 billion, of the total cash, followed by health care (mostly pharmaceutical companies) at 13%, or over $200 billion (see chart 2). These two industries have particularly high proportions of their cash overseas because they accumulate much of their profits in non-U.S. countries, where most of their intellectual properties are registered.

While record cash balances make for good headlines, the more important story, in our view, is that total debt outstanding has risen roughly $2.2 trillion, to a record $5.8 trillion in the past five years (see chart 3). As it stands, cash as a percentage of debt is at 33% for U.S. corporates overall.

https://www.spglobal.com/en/research-insights/articles/us-corporate-cash-reaches-19-trillion-but-rising-debt-and-tax-reform-pose-risk

Norb Leahy, Dunwoody GA Tea Party Leader