Cash Strapped or Cash Hoardings – Look at these numbers

The world might be running high of rising asset prices and abundant liquidity which have heightened the inflation across the world. Last day, the republic of China raised its bank reserve requirements by 50 bps, the sixth time in less than a year and 4^th time in last 2 months in order to tame the inflation. Liquidity in the financial system has been another issue around the globe after the financial crisis. However, it eased after the developed countries announced a series of quantitative measures to ease the situation with US coming out with TARP, QE-I and now QE-II.  Sovereign crisis fear the European region which has questioned the existence of a unified region.

Amidst all these developments, many financially sound companies or marginally affected due to globe hoarded the money awaiting the new ideas for which they hoarded the cash in large quantum. The VRS Research team at Standard & Poor with the help of Capital IQ data examined the top 50 publicly traded companies globally, excluding financials, ranked by their latest reported quarter’s total cash and short-term investment holdings. The sum total for these companies’ cash balances is approximately US $ 1.08 trillion, almost near to cash holding for the entire S&P 500 Index.

We found 17 U.S.-based companies among the top 50 global corporate cash holders--which means that among specific nations, two-thirds of the top 50 global cash holding companies are headquartered outside of the U.S. From the perspective of dollar amounts, the 17 U.S companies account for $458.2 billion, or about 42%, of the top 50's global cash holdings. Meanwhile, the cumulative cash holdings of the 13 companies located in Asia and Australia, among the 50 below, amount to more than $270.1 billion, or about 25% of the group's total. In Europe, we find 17 companies among the top 50 global cash holders with aggregate cash holding total of $287.7 billion, or about 27% of cash balances among the global top 50.

With the abundance of capital abroad, there is a likelihood possibility that the firms may go for increased cross-border mergers and acquisitions as well as for strong earnings growth outside the U.S. After 2008 crisis, this domain has almost died given the tight liquidity scenario in their home country and globally. However, currently, the list could serve as a starting resource for ideas on who may be buying, where deals could occur, and possibly where profits may emerge.

Happy Investing! Happy Reading!

-        -   Amar Ranu

(Permission sought from S&P to post their articles on this blog)

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