NEW YORK – According to the financial research firm FactSet, Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOG), Cisco (NASDAQ:CSCO), Apple (NASDAQ:AAPL), and Oracle (NYSE:ORCL). Combined these companies have amassed $ 245 billion in cash. That is more than the market capitalization of IBM (NYSE:IBM), the fourth largest company by market capitalization on the S&P 500.
According to reports, Microsoft has close to $ 77 billion in cash and short-term investments on hand as of June 30 – almost a 400 percent increase since 2008. Google has close to $ 16 billion while Cisco, Apple, and Oracle have $ 7.9 billion, $ 11.2, and $ 32.3 billion in cash and equivalents on hand respectively.
According to Nikhil Varaiya, director of graduate programs and a professor in the Finance Department at San Diego State University, ‘Current operating cash flows are higher than their current investment needs, so cash is beginning to pile up.’ In general, terms, as companies mature, growth slows, and cash begins to accrue.
The scale is staggering, and it gives little reason why activist investors have started to target tech companies such as Microsoft and Dell (NASDAQ:DELL) as shareholders are increasingly pushing companies to make acquisitions or return some of it to shareholders in the form of dividends and stock buybacks. While some companies have started to listen, Oracle started paying dividends in 2009, and Cisco followed in 2011, the pile of cash keeps going.
FactSet researched all of the non-finance companies that make up the S&P 500 are currently sitting on almost $ 1.29 trillion in cash and short-term investments. To put that in perspective, the total is more than the GDP of Mexico, the fourteenth largest economy in the world (roughly $ 1.2 trillion in 2012). In the past year, the total has grown by 7.8 percent from a year ago – approximately the same GDP growth as China.
While companies certainly need some level of cash to protect against risk, some analysts believe the sheer volume of cash on hand is actually inhibiting economic growth as the large cash position serve as disincentive to speed up innovation that could disrupt their own cash flows. For boards, the challenge is to preserve a certain level of security whilst providing shareholders with adequate returns.