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With the COVID-19 Delta Variant looming over the world today, big high-performing companies such as Google and Apple are careful to dispense of their cash deposits as times continue to be uncertain. As the Delta Variant continues to affect many countries, there is no way of foretelling for sure how the global economy will perform in the next few months. Just when the business industry looked forward to a spending spree from consumers in light of the supposedly weakening pandemic, there is the likelihood that people will choose to hold on to their cash in preparation for precarious months ahead.
Reports reveal that cash and short-term investments on corporate balance sheets all over the world today are experiencing an all-time high as it is estimated to be at $6.84 trillion based on S&P Global Ratings. This translates to at least a 45% increase than the average in the last five years or so. This also means a 2.6% increase from the previous quarter.
S&P Global Ratings global head of corporate research Gareth Williams believes that the cash levels can potentially go as high as $7.1 trillion by the end of 2021.
Apart from Google and Apple, several other tech giants are hoarding cash, including Microsoft. All these three industry giants combined amount to $640 billion in cash on their respective balance sheets. Amazon, on the other hand, has almost $90 billion, while Facebook has over $64 billion.
It is also worthy to note that it is not only the tech giants that are preparing for another worse-case scenario. Investment giant Berkshire Hathaway owned by Warren Buffet, is also holding in a massive amount of cash that is estimated to be at $144.1 billion at the end of June. It is significantly higher than its $138.3 billion on the balance sheet last December.
Clearly, companies are taking warning signs and red flags quite seriously the past few months as finance chiefs are working doubly hard to strengthen their cash buffers. Many companies have also been making the most of low-interest rates being offered nowadays and are borrowing money to build up their cash. Unfortunately, this also increased debt levels significantly.
The accumulation of this enormous amount of cash begs the question of whether or not companies should start investing what they have on worthy products and possibilities.
Moody’s Senior Vice President Richard Lane remains positive that companies will start to let go of their cash instead of keeping it dormant while waiting for the final blow of the Delta Variant on the world economy. “What happened during the pandemic is that large investment-grade companies were aggressive in refinancing debt or raising new money,” Lane explained. “As we go through this year, I would expect that cash levels will come down a little bit.”
Aggressive investors just might go for pursuing new investments in the next few months and leverage their available cash, but it is also safe to assume that companies that have recently bounced back from the effects of the pandemic might still be a little wary about making investments.
