Cash is one of the most valuable assets a company can have. Smart businesses can deploy cash to take advantage of opportunities for expansion and growth, while also wooing investors by offering them a share of the spoils through dividends and share buybacks. When you look at the top non-banking companies with the most cash and short-term investments on their balance sheets, you'll find Microsoft (MSFT +2.11%) and Alphabet (GOOGL +1.71%) (GOOG +1.35%) at the top of the list, followed by Warren Buffett's Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B). Also making a respectable showing are fellow tech giants Apple (AAPL 0.85%) and Cisco Systems (CSCO +0.47%). In total, these companies reported $463 billion in cash and short-term investments, and when you add in certain investments that are classified as long-term, their available war chests are even larger than that.
For all of these companies, cash levels have been on the rise in recent years. Looking more closely at how they've come up with their cash and what plans they have for its future use is essential in order to understand the underlying business strategy that these companies are following.
|
Company |
Cash and Short-Term Investments |
Increase Since 2012 |
|---|---|---|
|
Microsoft |
$129.2 billion |
108% |
|
Alphabet |
$94.7 billion |
101% |
|
Berkshire Hathaway |
$91.1 billion |
103% |
|
Apple |
$77 billion |
164% |
|
Cisco Systems |
$70.5 billion |
45% |
Data source: S&P Global Market Intelligence.
Image source: Microsoft.
1. Microsoft
Microsoft has seen its liquidity levels double over the past five years, topping the $100 billion mark last year and continuing to soar. Most of Microsoft's current assets are locked in short-term investments, with about $112 billion invested in U.S. government and agency bonds and another $13 billion in bonds issued by corporations, municipalities, foreign governments, and underwriters of mortgage-backed and asset-backed securities.
That said, Microsoft's net cash levels haven't really risen that much, because its long-term debt has skyrocketed. The tech giant has $76 billion in long-term debt, with maturities that go out as far as the year 2057. Less than a third of Microsoft's debt will mature in the next five years, and almost $24 billion isn't due until 2040 or later. With interest rates on the longest-term debt in the range of 3.5% to 5.3%, Microsoft believes that its fundamental business will produce returns that will outpace its cost of long-term capital over the long run.
Google is the primary subsidiary of Alphabet. Image source: Alphabet.
2. Alphabet
Alphabet reported nearly $95 billion in cash and short-term investments on its balance sheet in its most recent quarter, and like Microsoft, the online search giant kept a conservative bent. Short-term investments consisted primarily of U.S. government obligations, with corporate and municipal debt and asset-backed securities picking up most of the remainder. Almost all of those investments will mature within the next five years, making them readily available for reinvestment as needed.
Alphabet has not followed Microsoft's game plan of levering up its balance sheet, however. The company has just $4 billion in long-term debt, up from $3 billion five years ago. Many believe that Alphabet should be more aggressive in putting its cash to use, suggesting strategic acquisitions and returning capital to shareholders through the implementation of a dividend or by using stock buybacks. So far, Alphabet hasn't needed to make big purchases in order to move into key areas of potential growth, but the time might come where quicker action than home-growing a business becomes necessary.
Geico is one of Berkshire Hathaway's most important businesses. Image source: Geico.
3. Berkshire Hathaway
Berkshire Hathaway has a long history of gathering cash for investment. Unlike tech companies, however, Berkshire has to stay aware of its obligations. The conglomerate reported more than $95 billion in insurance-related loss liabilities on its balance sheet, along with $16 billion in unearned premiums and a host of debt items. Being able to cover insurance losses in particular requires access to cash.
That said, Berkshire has also grown the size of its long-term investment portfolio, which has risen by $58 billion in the past five years. Warren Buffett consistently looks for big-ticket purchases that he can use to deploy short-term cash into investments that will produce better returns. With most of its war chest invested in short-term U.S. Treasuries, Berkshire has plenty of ammunition to pursue companies in promising industries.
Image source: Apple.
4. Apple
Apple's cash hoard is notorious, and by its own accounts, its balance sheet arguably understates it. In addition to its short-term investments, the tech giant has $185 billion in government, corporate, and asset-backed securities that are classified as long-term. The fact that much of Apple's cash is held abroad also complicates matters, but most treat the iDevice giant has having a war chest of roughly a quarter-trillion dollars.
Apple's debt has ballooned in recent years, going from zero in 2012 to almost $90 billion. Part of that money has financed higher dividends and other methods of returning capital to shareholders, but for the most part, Apple hasn't found it necessary to make huge investments in its business that go beyond its ordinary cash flow. As long as repatriation rules make bringing capital back to the U.S. onerous, Apple is likely to let its cash build.
Image source: Cisco Systems.
5. Cisco Systems
Cisco has been the most conservative of these five companies, "only" letting its cash levels climb by about half. The networking company has a similar mix of short-term investments as its peers, and although its debt levels have risen at a roughly equal clip to its assets, the $26 billion it owes leaves plenty of available capital for potential use.
Like other tech companies, most of Cisco's liquid capital is locked abroad pending changes to U.S. tax laws. If a repatriation tax holiday happens, then it would free up Cisco to consider major consolidation moves that could incorporate competitors' innovations and build a behemoth in the networking industry. Of course, other buyers would also suddenly have more money at their disposal, and that could produce huge bidding wars for attractive acquisition targets.
Be ready
Cash isn't the ideal long-term investment for a company, but it gives businesses the ability to capture opportunities when they present themselves. Investors can expect these companies to use some of their cash to make acquisitions, and some for dividends and buybacks, while keeping most of it in reserve for future opportunities. Watch these five companies closely to see what they do with their cash and whether it goes to good use in the long run.
