Corporate America’s Millstone of Too Much Cash
Corporate America is flush with cash. Amazing amounts of cash.
According to research house FactSet, the combined cash balances of just the 500 companies in the S&P 500 is sitting at a record $1.4 trillion.
That’s a mountain of cash, but here’s some perspective on just how much money we’re talking about. $1.4 trillion is enough money to buy all the shares of Berkshire Hathaway… and Facebook… and Apple… and still have money left over.
That amount increases to almost $2 trillion if you expand the universe to include all publicly traded stocks.
A publicly traded company has five options when it comes to deploying that cash:
- Pay down debt
- Buy other companies
- Pay out dividends
- Buy back its own shares
- Let it sit in the bank and earn interest
The last option—let it sit in the bank and earn interest—isn’t very attractive in this day and age of zero interest rates, and most companies with gigantic cash hoards have already paid down most, if not all, of their debt, so the only viable choices are numbers 2, 3, and 4.
…click on the above link to read the rest of the article…
