Many companies hoarded cash during the recession and financial crisis as a precaution against the worst-case scenarios that were being carelessly bandied about in the financial media. Nearly one year after the trough of the market back in March 2009, almost 400 non-financial companies in the Standard and Poor's 500 have reported total holdings of $932 billion in cash and short-term investments as of December 31st, 2009. This total was up 8% sequentially and 31% year over year. What will these companies do when market conditions encourage them to deploy their huge war chests?
IN PICTURES: Digging Out Of Debt In 8 Steps

Gobbling Up Market Share
Although revenues, earnings and cash flow fell sharply due to the recession, many companies instituted sharp cost cutting to deal with that. Also, many companies disappeared through bankruptcy over the last few years, leaving the competitors still standing with the opportunity to capture business.

Circuit City filed for bankruptcy in November 2008 and closed its stores shortly after. This had the effect of making Best Buy (NYSE:BBY) stronger in the long run since they two chains competed in many of the same markets.

Hhgregg (NYSE:HGG), another electronics retailer, also took advantage of the woes of its competitor. It announced that it was opening up in five former Circuit City locations in Maryland.

The large cash holdings have led to an increase in stock buybacks and dividends. Standard and Poor's reports that 62 share buybacks were announced in February 2010, totaling $40.1 billion. (Find out what share repurchases mean for shareholders in A Breakdown Of Stock Buybacks)

The companies with the highest cash holdings include the usual suspects in the technology sector like Apple Computer (NYSE:AAPL) with $24.8 billion, or Cisco Systems (Nasdaq:CSCO) with $40 billion. Microsoft (Nasdaq:MSFT) has $36.1 billion in cash and equivalents, and Oracle (Nasdaq:ORCL) has $20.8 billion.

Cash isn't everything, however. While the $25.5 billion in "gross cash" that Ford (NYSE:F) has on its balance sheet may seem impressive, the company does have to contend with paying interest on its $34.3 billion in total automotive debt.

This large cash hoard may lead to a sharper recovery than is currently being predicted by market pundits, who have been insistent that the recovery will be sluggish and with little job growth. It could be that the improved balance sheets of many companies will make them more likely to build inventory or expand when the recovery starts.

Bottom Line
Large cash holdings are a logical consequence of sharp management teams buckling down during a recession, cutting costs and taking advantage of competitor downfalls. These companies may lead us back to prosperity and employment when the recovery begins.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Fundamental Analysis

    The 3 Best Investments When Bull Markets Slow Down

    Find out why no bull market lasts forever, and why investors should shift their assets away from growth and toward dividends when stocks slow down.
  2. Mutual Funds & ETFs

    The 3 Best Downside Protection Equity Mutual Funds

    Learn how it is possible to profit in a bear market by owning the correct selection of mutual funds that provide downside protection and opportunity.
  3. Economics

    The 2007-08 Financial Crisis In Review

    Subprime lenders began filing for bankruptcy in 2007 -- more than 25 during February and March, alone.
  4. Investing News

    Market Outlook: No Bottom Until 2017?

    These investing pros are bearish on the market in 2016. Will there be a bottom in early 2017?
  5. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  6. Investing News

    Building a Case for the Bulls: 3 Opinions

    These three big names are bullish on the economy. Are there good times ahead?
  7. Your Clients

    How Advisors Can Make the Most Out of Volatility

    Advisors can use market volatility as an opportunity to enhance their value to their clients and grow their practice. Here's how.
  8. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  9. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  10. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
Trading Center