While politicians and economists debate whether or not tax cuts or expand government stimulus spending -- or both -- to spark the U.S. economy, a new report from REL Consulting, a cash-flow consulting firm based in London and Miami, concludes that the nation’s 1,000 largest firms are hoarding over $853 billion in cash.
And it's making life even more difficult for smaller companies starving for cash flow and access to credit. It also explains, in part, why the U.S. unemployment rate remains stuck at a dispiriting 9%.
The report found that this huge cash pile is not the result of improvements in working capital management, but is for the most part composed of increased sales that are simply not being invested or spent on hiring workers at a time when companies lack confidence in the direction of the economy.
Meanwhile, the ability of other smaller companies to collect bills from customers, to pay suppliers and to manage inventory only improved by 2% in 2010, the report found. And that performance followed a major deterioration the year before.
Meanwhile, cash reserves among the largest firms have increase by more than 6% since 2009, by 33% since 2008 and by nearly 75% since 2005.
In addition, the report claims that many of the largest companies, particularly those with AAA ratings, are even borrowing money to supplement their already bulging cash stockpiles. Total debt at these companies has increased by 30% over the past three years.
The report’s authors said this borrowing is motivated by current low interest rates and may in part be intended for funding future merger and acquisition activity.
"Small-cap companies, where much of the current economic growth is, are starved for capital right now," the report said.
The authors suggest one “win-win” idea: encourage large companies to offer faster payment terms to smaller suppliers to help inject cash into their balance sheets in exchange for a small price discount.
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