Consumers and the federal government are spending money as fast as they can get it, but not U.S. corporations.
The country’s largest companies have built up $634 billion in cash on their balance sheets, the biggest stash in 17 years, according to investment-research firm Standard & Poor’s.
Colorado’s 99 public companies held nearly $18 billion in cash and other short-term investments at the end of the second quarter, according to an analysis by The Denver Post using data from Bloomberg LP, a financial-information company. That’s up from nearly $16 billion a year earlier – enough to pay $4,000 to each of the state’s 4.5 million residents.
Several trends contribute to the big cash reserves, market watchers said.
Profits are strong enough to generate excess cash. Cost cutting and productivity gains following the 2001 recession have improved profitability.
Also, a change in tax laws late last year has also motivated some corporations to return capital held overseas to this country.
But corporations are not money-market funds. Management is charged with spending cash to generate a higher return for investors, said John Claxton, a vice president with stock brokerage RBC Dain Rauscher in Denver.
They do that by investing back into the business – buying new equipment and inventory, hiring employees, paying down debt and acquiring other companies.
Qwest, for example, has doubled its cash and short-term investments to $2.88 billion over the past 12 months.
“We have sought to maintain cash balances that allow us to opportunistically reduce debt, maintain appropriate liquidity and to fund other obligations,” Qwest spokesman Bob Toevs said.
Some analysts speculate the company is building a war chest to pursue assets spun off from the merger of MCI and Verizon Communications.
Companies also can boost shareholder returns by buying back existing shares or paying out a bigger dividend.
Corporate executives still have the jitters from the overspending and excesses of the last bull market, said Fred Taylor, a money manager with Northstar Investment Advisors in Denver.
“People aren’t going to feel comfortable expanding their business until they see oil prices and interest rates stabilize,” he said.
Rising interest rates may foster caution, but they also provide an incentive to stay parked in cash, said George Hagerman, chief executive and founder of CacheMatrix.com in Denver.
The firm offers a “supermarket” of institutional money-market funds for corporate treasurers.
One institutional money-market fund offers 3.51 percent, a low-risk and fully liquid place to invest cash, he said.
Large cash holdings, rather than representing a lack of confidence in future prospects, could actually boost the economy, argued Wells Fargo Capital Management investment strategist Jim Paulsen.
More cash means more business spending down the road, enough to boost economic growth by as much as 1 percent a year in 2006 and beyond, he forecasted.
Staff writer Aldo Svaldi can be reached at 303-820-1410 or asvaldi@denverpost.com.
$17.9 BILLION
Cash and short-term investments held by Colorado corporations, up from $16 billion a year ago, according to Bloomberg News
$634 BILLION
Cash held by the nation’s corporations, according to Standard & Poor’s
$2.2 BILLION
Cash held by Qwest, the largest total among Colorado corporations
$4,000
What each person in Colorado would have if all the corporate cash was distributed among the state’s 4.5 million residents
