In the wake of the financial crisis, many corporations have built significant cash reserves. In the US, for example, rating agency Moody’s estimates that the US non-financial companies it rates held US$1.73trn in cash at the end of 2014, up 4% from US$1.67trn the year before.[1] Companies in the technology sector held the most cash (40% of the total), followed by healthcare/pharma, consumer products and energy. In the UK, private non-financial corporations consistently ran a financial surplus between 2002 and 2013; they now hold around £1.8bn (US$2.8bn) of financial assets, including £500bn of cash.[2]

In a survey conducted by The Economist Intelligence Unit in July-August 2015, a vast majority of finance executives at corporations say that their companies have either fair or large amounts of excess cash. Of those, more than half say they hold excess cash because they are waiting for future investment opportunities. Other reasons to retain high levels of cash include insurance against a lack of liquidity, avoidance of high taxes on repatriated profits, potential requirements to invest in research and development (R&D) activities, or uncertainty about future taxes. Taxation on repatriated funds is a particular concern for US-based companies, which are taxed at over 30% on profits returned from overseas operations.

Very few respondents indicate that they hold no or little excess cash. Companies in this group tend to say that they use cash to pay bills, creditors and suppliers as early as possible. Lelaina Lim, Group CFO at pan-Asian clothing retailer RSH, says weak economic growth means she is focused on cash preservation. “In the current environment, where consumers are less willing to spend, we are trying to balance reinvesting in new stores and increasing product lines with paying off long-term debt.”

As the cost of carrying cash has fallen, explains John Grout, policy and technical director at the Association of Corporate Treasurers (ACT) in the UK, many large companies have liquid cash, even if they also have debt. “Treasurers are wary about access to capital markets and to bank funding. They don’t want to rely on markets or banks, which may be less willing to provide liquidity facilities if there is another crisis.”