* Largest 1,000 U.S. companies have $853 bln cash cushion
* Biggest companies borrow cheaply to accumulate cash
* Improving working capital will boost earnings: study
By Nick Zieminski
NEW YORK, July 13 (Reuters) - The 1,000 largest U.S. corporations outside the finance sector have used low borrowing costs to build up an $853 billion cushion of cash, but they are hoarding the money rather than spending it, according to a new study.
This still-growing cash pile reflects uncertainty over the economy, skepticism about demand and a lack of attractive investment opportunities, according to the study to be published on Friday by REL Consulting, a division of the Hackett Group (HCKT.O), and CFO Magazine.
Cash levels at the end of last year were up 6 percent from 2009 and up 75 percent from before the recession, the annual study found.
The research suggests that a long period of low interest rates and other measures to stimulate a still-feeble U.S. economy have let companies fill their coffers for better days ahead without putting the money to work. It predicts companies will further increase reserves for the balance of this year.
It also draws a sharp contrast with small companies, which are less likely to have top-notch credit ratings.
Top companies have good and cheap access to external funds, but small ones -- which generate much of current economic growth -- do not, said Shawn Taoufiki, one of the lead researchers for REL, a corporate adviser.
"Large organizations sit on cash with limited investment opportunities, and small organizations are being starved for cash," Taoufiki said. "Neither scenario is good for the short-term improvement of the (U.S.) economy."
WAITING ON A SUNNY DAY
The study serves as an example of why a tentative U.S. economic recovery has trouble gaining traction. Cautious executives avoid large-scale investment, which inhibits the rebound -- a vicious circle.
Volatile raw materials prices and weak consumer confidence have prompted companies to build a cash buffer. CFOs and treasurers are also seeing a dearth of potential high-yield investments; some are saving up for eventual mergers and acquisitions once confidence improves.
Companies have been focusing exclusively on revenue growth and operating margins at the expense of other objectives, including working capital, the study argues.
If companies can increase working capital -- defined as current assets minus current liabilities -- they can boost operating earnings by around 4 percent during an eventual economic recovery, in part by freeing up money for strategic initiatives.
But working capital has barely budged for the 1,000 largest public companies over the past five years, rising just 2.5 percent on average, while debt soared by a third.
Results vary widely by industry.
Tier-1 auto suppliers, such as Visteon Corp (VC.N) and Cooper Tire & Rubber (CTB.N), built up cash on hand without taking on new debt in 2009 and 2010. The study calls auto suppliers a "good" industry that is using working capital to shore up its cash base.
By contrast, the beverage sector -- REL lists Molson Coors Brewing (TAP.N) and Constellation Brands (STZ.N), among others -- is a "bad industry" that almost doubled debt levels to improve cash balances, with little growth in working capital.
The consultant offers several prescriptions. One "win-win" recommendation is for large companies to pay their suppliers early to help them access cash -- in exchange for a small discount. (Editing by Steve Orlofsky)