With uncertainty driving the markets over the past year, a question that has not been asked much is becoming more prevalent: which companies have the most cash on hand?
Not only does cash provide the opportunity to meet short-term obligations, but a strong cash balance demonstrates a company’s ability to generate free cash flow.
When analyzed over time, one can develop a narrative for a company’s management of cash and trending performance.
Without historical analysis, investors will question why a company is building such a large cash balance when they could use it for a multitude of purposes, such as:
- Has the company run out of investment opportunities?
- Does the company anticipate a major event occurring?
- Is sitting on cash really the best opportunity cost?
According to Investopedia,
“more often than not, a cash-rich company runs the risk of being carless. The company may fall prey to sloppy habits, including inadequate control of spending an unwillingness to continually prune growing expenses. Large cash holdings also remove some of the pressure on management to perform.” 
There are definite pro’s and con’s to maintaining a strong cash balance, but it’s imperative that investors utilize historical cash balances when developing an opinion.
BERKSHIRE HATHAWAY ($BRK.A)
With a whopping $146 Billion cash balance, Berkshire Hathaway comes in with the highest cash balance in the S&P 500!
Over the last five years, the conglomerate has accumulated an additional $30 Billion in cash…
With all eyes on Buffet and his investment decisions, what does that signal?
In addition to reducing its stake in Wells Fargo ($WFC), investing in Barrick Gold ($GOLD), and padding its cash balance by $30 BN, investors have to interpret Buffet’s outlook as negative.
Berkshire Hathaway, with their vast network of investors and industry-leaders, projects a greater opportunity cost to hold a cash balance of $146 BN instead of taking on additional investments.
For more information on investing like Warren Buffet, check THIS out!
MICROSOFT CORPORATION ($MSFT)
Coming in a close second behind Berkshire Hathaway is Microsoft, with $138 BN of cash and short-term investments.
Unlike Buffet, however, Microsoft has maintained a steady cash position hoover around $132 BN over the last five years.
As an active company in the Mergers and Acquisition market paired with record, low interest rates, Microsoft has opted to finance the majority of their deals.
Why would shareholders prefer a company to pay for an acquisition all at once when they can spread out payments for x years with no interest?
Additionally, market participants view the majority of potential tech deals as overvalued.
ALPHABET INC. ($GOOGL)
As of September 30, 2020, Google also sat on a huge pile of cash, $133BN…
Similar to Apple, which we’ll get into, Google’s ability to put cash to use has been scrutinized by investors and analysts alike.
Instead of sitting on their cash, Investors “prefer that companies use that money to buy back stock or pay shareholder dividends”
A majority of investors do not care, but is repurchasing stock to boost earnings-per-share ultimately the best use of cash for majority of the tech companies?
Unfortunately, the market rewards companies putting cash to use to repurchase stock instead of investing in Plant, Property, and Equipment (PP&E) or Capital Expenditures (CapEx).
Additionally, Google and Apple have significant cash holdings overseas. With reparation tax implications, there is not an incentive to bring that money back over.
Nonetheless, the coveted FAANG’s hoard mind-blowing cash balances and finance stock buybacks to artificially inflate their performance.
APPLE INC. ($AAPL)
As one of the most talked about companies in the world, usually for the commonality of their product, Apple holds a cash and short-term investment balance of $91 BN.
Critics are quick to attack Tim Cook on their use of cash for stock buybacks; take a look and this chart and you may see why:
The chart above pretty much speaks for itself…
However, as the Coronavirus Pandemic struck the world, Apple’s operations were negatively impacted across all streams.
Stores were closed, factories were halted, and ports were backed up with stock. Apple’s cash position, although usually criticized, has supported them through 2020 and will continued to be utilized as the world works to get back on its feet.
AMAZON.COM INC. ($AMZN)
Surprising to most, the company with a $1.5 TN Market Cap ranks fifth on the list for cash balance.
Amazon has done a superb, arguably illegal, job of continually reinvesting free cash and taking risks to grow in every industry.
Amazon Prime, which Americans have become accustomed to, operated for years at a loss. Jeff Bezos and company were confident their investment would pay off, and sure enough it has.
Also as expected, Amazon has operated for 33 quarters without repurchasing stock!
Amazon’s ambition to enter every space (cloud computing, groceries, etc.) has required continuous investments. Pair the current interest-rate market with an ambitious company willing to utilize leverage and sky’s the limit!
Unlike the names above, Facebook has seen little disruption to its operations due to the Coronavirus; The Company has grown to a cash balance of $56 BN over the last five years.
While Mark Zuckerberg’s biggest threat continues to be Washington D.C., the legislative outlook for Facebook remains uncertain.
Like Apple, Facebook has maintained a consistent share repurchase program over the past five years.
Additionally, Facebook has remained active in the M&A market to maintain their presence in nearly every piece of social media Americans touch.
Is Cash Important?
As stated, there are clear pro’s and con’s to maintaining a strong cash balance. The question is always going to be asked: is there a better use for that money?
Companies, like Apple, that have maintained significant share repurchase programs prove that there is little ambition for the company.
Conversely, Amazon prides itself on leading the industry on innovation. Whether they are planning drone deliveries or working with the pentagon to store data, The Company is always looking to put cash to work.
Next time you make an investment, dig into the financials of the company and ask yourself: what does the future look like for this organization?
- Investopedia.com. “Can A Company Have Too Much Cash?“
- CNBC.com. “Here Are The Ten Companies With The Most Cash On Hand“
- MarketsInsider.com. “Google parent Alphabet has dethroned Apple as the world’s cash king after a decade of dominance“