Source: Verve Times
As the COVID-19 pandemic continues to shake the world to its core, many companies are gasping for breath as the Delta Variant threatens another wave of economic downturns. As a matter of fact, some of the world’s non-financial institutions, such as Apple, Google, and other big companies, are bracing themselves by adding more and more money to their piles of cash, a sign that corporations are increasingly nervous about the potentially damaging effects that the new variant has on the global economy.
According to the data gathered by S&P Global Ratings, the world’s largest corporations hold a staggering record of $6.85 trillion in cash, which has been written all over their balance sheets as of the end of the second quarter. These numbers are slightly higher than the numbers gathered at the end of the year 2020, which led Gareth Williams, global head of corporate research for S&P Global Ratings, to estimate that the cash level could hit $7.1 trillion by the end of 2021.
While the technology realm is certainly thriving during these trying times, tech giants are still not confident with the economic boom as they are the top companies who are particularly hoarding cash. Apple, Microsoft, and Google owner Alphabet have a combined record of $460 billion on their balance sheets. Amazon has nearly $90 billion, while Facebook holds a staggering record of $64 billion.
Aside from tech companies, renowned corporations are also stockpiling cash to prepare themselves against future economic downturns. As a matter of fact, Warren Buffet’s Berkshire Hathaway has $144.1 billion recorded on its balance sheet, a stark growth from the $138.3 billion record they had last December 2020.
While several companies are hoarding cash and taking advantage of low-interest rates to borrow money, other corporations have taken this time to use their cash in order to invest for their future.
“We’d thought earlier this year that by this time, companies would be starting to draw down cash,” said Christopher Harvey, head of the equity strategy at Wells Fargo. “But companies are spending on buybacks, dividends, and mergers. The capital markets are wide open,” Harvey added. “The cost of funding is incredibly cheap, so companies are issuing debt, and cash is still accumulating.” According to another report by S&P, some companies will spend $2.8 trillion on capital expenditure this year, particularly corporations outside the struggling energy and materials sector.
Due to the threat of the new Delta Variant, companies have built an unusual buttress of cash, said Richard Lane, senior vice president of Moody’s. They have accumulated enough in their balance sheets to break records even during a global health crisis. While it is good to gather cash during these trying times, it may also be beneficial for corporations to spend some of this on investments.
“What happened during the pandemic is that large investment-grade companies were aggressive in refinancing debt or raising new money,” Lane said. “As we go through this year, I would expect that cash levels will come down a little bit,” he added.