Executive Briefings

Largest Public Companies Continue to Hoard Cash at Record Levels

Large public companies in the U.S. are continuing to hoard cash at record levels, and 1000 of the largest are now holding $850bn, according to new research from REL Consulting, a division of The Hackett Group Inc.

REL's research, which is based on corporate filings through June 2011, shows that as revenues have increased over the past year so has cash on hand, with companies now holding 11 percent more cash than they did in Q2 of 2010.Total debt also increased by 7 percent during the period, indicating that companies are taking advantage of low-cost borrowing opportunities to increase their cash on hand. REL's research also found that companies are beginning to incrementally increase the amount of cash they are putting to use for purposes such as paying dividends, making capital expenditures, and share buy-backs.

At the same time, REL's research shows that working capital performance for 1000 of the largest public companies degraded slightly. Companies are now taking 2 percent longer to collect from customers, and are holding nearly 2.5 percent more in inventory. Companies actually improved payables performance slightly, offsetting some of the losses in other areas. These companies now have nearly $800bn unnecessarily tied up in receivables, payables and inventory due to sub-optimized working capital management.

"Cash hoarding continues to be the trend. But high cash balances don't necessarily indicate strong performance," said REL associate principal Dan Ginsberg. "The working capital numbers clearly show that while companies managed to right-size their working capital in late 2009, in response to economic challenges, they quickly lost focus once revenue growth returned, and the improvements they made were not sustainable. Companies are now taking their eyes off the ball when it comes to efficiently running their business. Accounts receivables are bloated, and companies are holding more inventory for various reasons, only some of which are strategic."

Click here for full details on REL's research findings, including information on individual company metrics and industry performance.

Source: REL Consulting

Large public companies in the U.S. are continuing to hoard cash at record levels, and 1000 of the largest are now holding $850bn, according to new research from REL Consulting, a division of The Hackett Group Inc.

REL's research, which is based on corporate filings through June 2011, shows that as revenues have increased over the past year so has cash on hand, with companies now holding 11 percent more cash than they did in Q2 of 2010.Total debt also increased by 7 percent during the period, indicating that companies are taking advantage of low-cost borrowing opportunities to increase their cash on hand. REL's research also found that companies are beginning to incrementally increase the amount of cash they are putting to use for purposes such as paying dividends, making capital expenditures, and share buy-backs.

At the same time, REL's research shows that working capital performance for 1000 of the largest public companies degraded slightly. Companies are now taking 2 percent longer to collect from customers, and are holding nearly 2.5 percent more in inventory. Companies actually improved payables performance slightly, offsetting some of the losses in other areas. These companies now have nearly $800bn unnecessarily tied up in receivables, payables and inventory due to sub-optimized working capital management.

"Cash hoarding continues to be the trend. But high cash balances don't necessarily indicate strong performance," said REL associate principal Dan Ginsberg. "The working capital numbers clearly show that while companies managed to right-size their working capital in late 2009, in response to economic challenges, they quickly lost focus once revenue growth returned, and the improvements they made were not sustainable. Companies are now taking their eyes off the ball when it comes to efficiently running their business. Accounts receivables are bloated, and companies are holding more inventory for various reasons, only some of which are strategic."

Click here for full details on REL's research findings, including information on individual company metrics and industry performance.

Source: REL Consulting