Accounting News

Wednesday, August 31, 2011
Do Companies Have Too Much Cash

The cash balances of many companies are on the rise. CFO magazine did a study of 885 companies and found cash on the balance sheet has risen from 3.7 percent to 7.3 percent in 210. The companies surveyed had $750 billion in cash, four times as much as they had a decade earlier.

With all the uncertainty in the market it is not surprising that companies are taking a conservative approach. But investors are starting to get restless. Cash does not have a great return. Investors give money to earn a return on their money. Not to have the company sit on the cash. In the end the investors might just take out their investments to sit on the cash themselves or put it where it can earn a greater return.

If a company is sitting on too much cash it can always buy back stock or increase their dividend to maintain share prices.