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Companies hoarding more cash than ever before

March 20, 2013|Alana Semuels
  • Customers exit the Apple Inc. store in the Wangfujing area of Beijing, China, on Tuesday, March 12, 2013. Apple's Wangfujing store is the largest in Asia. Photographer: Tomohiro Ohsumi/Bloomberg ** DP OUT, OS OUT, HOY OUT, TCN OUT **
Customers exit the Apple Inc. store in the Wangfujing area of Beijing, China,… (Tomohiro Ohsumi / Bloomberg )

NEW YORK -- The economy may be improving, but many U.S. companies are still hanging on to record amounts of cash, something they usually do in times of economic turmoil.

U.S. companies held $1.45 trillion in cash in 2012, up 10% from the $1.32 trillion they held in 2011 -- which at that time was a record level, according to a new report from Moody's Investors Service.

Apple is sitting on $137 billion in cash, a fact not lost on investors, who have sued in an effort to get Apple to give some of that cash to shareholders. The iPhone maker contributes to the whopping $556 billion in cash that the technology sector holds currently. Microsoft, Cisco and Google also have big piles of cash.

Dell has also come under fire for hoarding cash, with activist investor Carl Icahn taking a big stake in the company in an effort to get more of the company's cash to investors.

It's not just technology companies that have a lot of cash on their books. Healthcare, pharmaceuticals, energy and consumer products companies, when added to technology, have $990 billion in cash, Moody's says.

While investors are clamoring to get some shares of the cash, governments have another desire for companies' giant hoards of cash. Much of it sits abroad, meaning it can't be taxed, a frustration to a government facing its own cash flow problems. Moody's estimates that 68% of the $1.32 trillion in cash is held overseas.

Companies hold cash overseas when they do business there. It's advantageous for them to do so because they can avoid being taxed, and can avoid giving much of it back to shareholders. They can also spend it on acquisitions and mergers overseas, growing their presence there.

"The amount overseas reflects the relative strength of most emerging market economies over the last few years, the negative tax consequences of permanently repatriating money to the U.S., and the domestic use of cash for dividends, share buybacks, and the majority of acquisitions," says Richard Lane, the Moody's senior vice president who wrote the report.

One thing that isn't being mentioned currently: using cash to hire more people. Companies have gotten more efficient during the recession, and are able to do more with fewer workers. Profit per employee has grown from $15,973.05 in 2005 to $19,496.49 last year, a 22% increase, according to data analysis company Sageworks. Profit per employee measures how much profit a company makes, divided by the number of employees they have.

Still, Moody's says, hoarding cash can be a smart thing when the market is uncertain, and when srong consumer spending is not a sure thing. 

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