Cash is a fundamental piece of our economy, whether we are saving it in a bank account or spending it at Walmart. Corporations also hold cash, more than most of us have ever seen in our lives, but they often reinvest it into the company through stock buybacks or projects, while others pay their shareholders through dividends. Cash determines liquidity, and in times of high growth opportunity, companies don’t hold much of it as there is a better use for it.
However, that has changed rapidly in the last year. Now, companies are sitting on a record amount of cash, with corporate balance sheets holding 6.84 trillion dollars in cash and short-term investments. This is a 2.6 percent increase from the previous quarter, and 45 percent more than the years before the pandemic. The increase is mainly due to concerns about the Delta variant, which has caused companies to increase their cash load in fear. When COVID struck for the first time, some corporations went into bankruptcy and heavy debt, so this precaution is a good one. For example, Carnival, the cruise company that was battered by the pandemic, is currently holding 9 billion dollars in cash compared to their pre-pandemic totals of 2 billion. Airline companies are also increasing their cash load, which could cause economic imbalances where some sectors could be lagging in the economic recovery. What do you think about the sudden increase in cash equivalents? Check your favorite company’s balance sheet to see if their cash amount increased!
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.