* 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 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
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
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
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
(Editing by Steve Orlofsky)