Cash isn’t King

As companies dealt with the challenges of the most recent recession, many hoarded cash and strengthened their balance sheets.  According to CFO Magazine, cash reserves for U.S. nonfinancial companies now total nearly $2 trillion.  With the economy seemingly on slightly better ground, are they now ready to deploy this cash rather than save for the next rainy day?
 
Forty one percent of nearly 1,000 financial services, consumer and industrial products, technology, media and telecommunications banking and securities, and energy and resources industry professionals said their companies plan to dip into their cash reserves and resume spending in 2012.  The Deloitte survey results showed that planned uses of cash include acquisitions, capital budget increases, share repurchases, one-time dividend payments or dividend increases.  Even Apple, who has amassed an incredible $98 billion in cash after years of spending reluctance, may be reconsidering its strategy.
 
Interestingly, one-third of those surveyed by Deloitte believe that investors want them to conserve their cash instead of spending it.  This didn’t appear true last April when one hedge fund manager told the Associated Press that “We’ve been in a bunker mentaility for too long,” and the Chairman and CEO of Legg Mason commented that, “The best use of cash is to deploy it.”  Or in a survey conducted by The Boston Consulting Group in May, where investment community respondents noted that the time had come for companies to start utilizing cash to create shareholder value by investing in profitable growth opportunities or returning it directly to shareholders.
 
Only time will tell if the purse strings have been loosened, but it seems as if that’s just what may be needed to help stimulate the economy.

— Laurie Berman, lberman@pondel.com