Apple And The Tech Companies Do Not Have A Third Of Corporate Cash: Don't Be Ridiculous

There's a new report out by Moody's Analytics into the cash holdings of American corporations and people are sadly misunderstanding what it is actually saying. It's true, in one sense, that Apple , Alphabet (formerly known as Google ). Microsoft , Cisco and Oracle have large cash holdings. But this is only true in one specific accounting sense and not at all in the more general sense that the rest of us understand. It is important that we understand this difference of meanings too. For all too many are arguing that those holdings are just sitting in cash, not doing anything useful, and further that they are outside the US. This is to the detriment of the US economy as getting that $1.7 trillion (the total corporate cash holdings) or the $500 and change billion of just the five tech companies back into the US economy would do very nicely as a pick me up, lead to a perkier economy. Even to the point that people advocate taxing these holdings in order to put the money to work.

That, sadly, shows a gross misundertanding of that more technical meaning of "cash" as it sits on a corporate balance sheet.

Here's the way one paper reports it:

The rising cash holdings of U.S. corporations are increasingly in the hands of a few U.S. companies, with just five tech firms having grabbed a third of it. And nearly three-quarters of cash held by non-financial U.S. companies is stashed overseas, outside the long arm of Uncle Sam.

Well, no, not really. Not really at all:

Roughly a third of all corporate cash held by non-financial American companies appears to be concentrated in the pockets of the five richest firms, fresh statistics show.

According to Moody’s Analytics, about 30 percent (some $504 billion) of the $1.7 trillion in cash held in 2015 by all American companies is in the hands of five tech companies: Apple, Microsoft, Alphabet, Cisco and Oracle.
A report by S&P states that as much as 51 percent of all cash holdings are concentrated in the hands of 25 US corporations.

Again, no, not really. This is more accurate:

Corporate America is bulging with cash. Nonfinancial businesses in the U.S. currently hold $1.7 trillion in cash or marketable securities, more than a third of it in the hands of just five companies, according to a Moody’s Investors Service report released Friday.

Apple, Cisco, Microsoft, Oracle and Google’s parent company, Alphabet, accounted for $504 billion between them. Apple alone has $216 billion, more than the aggregate total for eight of the 10 sectors of the corporate world.

The importance is that addition of the phrase "marketable securities".

The actual numbers are fine but it's that meaning of "cash" that needs to be thought about. For all too many really are thinking that when we say cash we mean actual cash. Piles of hundred dollar bills in some vault somewhere. If that were true it would indeed be a problem: that wealth would be shut off from the economy and not doing anything useful. And if we had $1.7 trillion walled off in that manner then we wouldn't be happy bunnies about it as the state of the economy would be worse than it is.

However, it is not true that Tim Cook and Jony Ive get together now and again to have a good giggle in a vault in Bermuda as they swim through piles of cash. That just isn't what we mean by a corporate cash holding at all. That Scrooge McDuck character really was just a character in a Walt Disney comic and not a reflection of how the real world works.

Here, in Apple's accounts, we can see what really does happen with that cash:

The Company believes its existing balances of cash, cash equivalents and marketable securities will be sufficient to satisfy its working capital needs, capital asset purchases, outstanding commitments, and other liquidity requirements associated with its existing operations over the next 12 months. The Company anticipates the cash used for future dividends and the share repurchase program will come from its current domestic cash, cash generated from on-going U.S. operating activities and from borrowings.
As of September 28, 2013 and September 29, 2012, $111.3 billion and $82.6 billion, respectively, of the Company’s cash, cash equivalents and marketable securities were held by foreign subsidiaries and are generally based in U.S. dollar-denominated holdings. Amounts held by foreign subsidiaries are generally subject to U.S. income taxation on repatriation to the U.S. The Company’s marketable securities investment portfolio is invested primarily in highly-rated securities and its investment policy generally limits the amount of credit exposure to any one issuer. The policy requires investments generally to be investment grade with the objective of minimizing the potential risk of principal loss.

Yes, Apple has loadsamoney. Yes, that loadsamoney is not repatriated into Apple USA accounts because if they did that then Uncle Sam would want a serious cut of it. Some 33% of so by some accounts (the 35% US corporate income tax rate minus foreign taxes paid which, a couple of years ago at least, amounted to perhaps 2% of Apple's foreign profits). So, people get this image of a vault in Bermuda just bulging with unused money. And that would, if it were happening be a problem. Even one that we might want to do something about in order to put that money to work.

But look at what they actually say they are doing with it. It is invested in other things. They don't quite say so but we would all assume that much of it is in Treasuries of various maturities (probably toward the short end) plus some high grade corporate bonds and notes. That is, the money is at work, just not inside Apple but inside those other organisations which have borrowed it.

Note also that while that "cash" might not be inside Apple's US corporate structure for that Uncle Sam reason the money is still in the US economy. For an Apple foreign subsidiary can still invest into the US just like any other foreign person, legal or natural can. And that's what they do do too.

Even if they weren't off buying bonds and the like (which is the same as lending the money to Uncle Sam and other businesses) and just kept it in their bank account (but not in that vault for the occasional swim) then the money would still be back out there in the real economy. Because that's what banks do. In fact, it's the definition of a bank: they take in short term deposits and bundle them up to make longer term loans for people to go do things with. Like, you know, invest in a business, that sort of thing.

It's very important indeed that we understand these different meanings of cash. Sure, the big tech companies have, by corporate accounting standards, vast cash holdings. But in the sort of terms that the rest of us use they've not got cash at all. It's not just money sitting around unused: it's money that is invested in other areas of the economy. Thus the argument that we should tax this "dead" money off them simply doesn't hold up. It's not cash in the sense we normally think of, it's not dead and it's not, except in the most legalistic sense, being held offshore. It's all working away in the American economy it's just invested in loans to other business and government activities.