Archive for the ‘Corporate cash balances’ Category

Apple’s taxes: Why the Fed’s argument is simply silly …

May 23, 2013

This week, Apple CEO Tim Cook was hauled in to DC to testify about Apple’s low corporate tax rate …

Cook explained that Apple makes a lot of money outside the U.S. … selling products that are made outside the U.S. under licenses held by foreign subsidiaries and sold in non-U.S. countries.

Said simply, no part of that income is earned in the U.S. either thru the development, manufacture, sales, or distribution of the products.


But, our wise Senators think that Apple should pay U.S. corporate income taxes on that money any way.


Because Apple was legally formed in the U.S. and has it’s Corporate headquarters in the U.S.


Here’s the code-breaking question to ask …


Nums: What do corps do with their cash?

April 10, 2013

Well, besides sitting on it – on-shore or off-shore — corporations have five basic uses for the cash that they bring in:

  1. share buybacks;
  2. dividends;
  3. acquisitions;
  4. research and development;
  5. capital expenditures

Bellow is Goldman Sachs’ estimate of the split.


Bottom line: about a 60% – 40% split between growth (acquisitions, R&D, and CapEx .… and shareholder distributions (stock buybacks & dividends).

Historically, the split was more like 75%  – 25%.

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How much cash are corporations “hoarding” … and, who’s doing the hoarding?

August 15, 2012

Excerpted from a Hoolihan Lokey pitch to the National Association of Corporate Directors …

First the facts …

The amount of cash on U.S. corporate balance sheets is at historical levels and continues to rise


  • Cash is a risk management tool — buffering against economic & regulatory uncertainty
  • Cash is a hedge against a disruption in accessing the capital markets … think 2008.
  • Cash ensures that a company can maximize its ability to act on opportunistic investment opportunities

Companies have been building cash positions to record levels

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How much?

In Q4 2011, total liquid financial assets on US non-financial balance sheets reached $2.3 trillion

Of the $2.3 trillion, it is estimated that approximately 30%, or $695 billion, is excess cash

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The ratio of cash to total corporate assets has increased from a relatively stable historical level of 6% to 7.6%

The ratio of cash to GDP has been steadily rising for the past 20 years …  dipped from 12.5% to about 10% from 2005 to 2009 … but, increased from 10% to over 15% from 2009 to now.


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5 of the 10 companies with the highest cash balances are technology-based (Apple, Microsoft, Google, Cisco, Oracle) … 2 are car companies GM and Ford … and 2 are pharma-related (J&J and Pfizer)


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For the biggest cash holders, most of the cash is held off-shore.


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So what?

While left-leaning pundits think that the cash balances to hire more employees — a seriously flawed economic thought — historically, companies have applied available cash to:

  • Pay down debt (deleverage)
  • Invest in organic growth (capital expenditures)
  • Make acquisitions
  • Return Return capital capital to shareholders dividends or share repurchases

Note that hiring unneeded, non-economic employees isn’t on the list …

Stay tuned.

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