US companies are stocking up on cash. But a lot of it is going to pay debt.
CFO reports that 1,000 US companies were holding $850 billion in cash, or 11% more than they had on hand at the end of the second quarter of 2010. "All that cash isn't being hoarded, however. The companies are holding a tad less of their revenues on their balance sheets, indicating that they're doing such things as investing in capital expenditures and retiring higher-cost debt, according to the study by REL Consulting, a division of The Hackett Group that focuses on working capital. Indeed, the ratio of capex to cash on hand increased about 14% year-over-year, according to the findings, which are based on corporate filings through June 2011."
But it's not just about retiring debt. As The Hill reports, much it is politically driven. "Many private wealth individuals and businessmen are hoarding cash for fear of over-regulation and the Obama administration strangling real growth of the U.S. economy. Consequently, the business community is not investing as much as it might because it is concerned about inflation and higher future taxes to pay for the borrowing."
Companies are also hoarding cash for fear of another credit crunch.
All up, it's not a good outlook for business as it's not reinvesting the cash in growth.
no comment untill now