Nonfinancial firms in the S&P 500-stock index hold a total of $811 billlion in cash

Discussion in 'Wall St. News' started by ASusilovic, Mar 15, 2009.

  1. While many financial companies are thirsting for cash, there's an even bigger group of businesses drowning in the stuff -- to the detriment of their shareholders.

    The nonfinancial firms in the Standard & Poor's 500-stock index have a total of $811 billion in cash and marketable securities on their books, calculates Goldman Sachs. That's just shy of a record high in nominal terms and up $43 billion from the depths of the financial crisis last fall.

    Squirreling away cash is almost as bad as frittering it away. The returns on idle cash are lousy, and putting cash to productive use is one of management's central obligations to shareholders. Yet with stocks near their lowest valuations in decades, companies are slashing share repurchases; buybacks are running 35% below their levels a year ago.

    While some outfits like Ford Motor or General Motors would jeopardize their very survival if they didn't cling to every penny, many big companies are being too cautious with their cash by any measure of prudence. Even as the economy keeps shrinking, their cash balances keep growing. Meanwhile, many shareholders could use some of that cash to make it through the recession themselves.

    This situation echoes 1932, when the great value investor Benjamin Graham lamented that "the typical stockholder is weighed down by financial problems while his corporation wallows in cash." Corporate bosses, said Graham, "are sleeping soundly these nights, while their stockholders walk the floor in worried desperation."

    Cash is not trash, of course; the natural urge to set a little money aside for a rainy day feels urgent in a recession. And some companies would take a big tax hit if they brought home the cash earned by overseas operations. But according to Strategas Research Partners, 168 out of the 419 nonfinancial firms in the S&P 500 have at least $1 billion in cash apiece, and 16 have more than $10 billion each. Exxon Mobil has $32 billion in cash, Cisco Systems has $29.5 billion, Apple $25.6 billion and Johnson & Johnson $12.8 billion. Such multibillion-dollar balances are more than a rainy-day fund; they're a 100-year-flood fund.

    http://online.wsj.com/article/SB123698238718924581.html

    100 year-flood-fund.:D :D :D
     
  2. It seems to happen every 10 years! :)