The FTSE 100 companies are sitting on a gross cash pile of £166bn, according to research by financial administration expert Capita Asset Services.
That’s up £42.2bn since the economic downturn arrived in 2008, an increase of 34%. The rise is down to companies cutting investment and retaining earnings following the financial crisis.
The average FTSE 100 company now has cash and cash equivalents of £1.9bn.
Net cash positions have also changed dramatically as companies have paid down short-term debt since the recession. The net cash position of FTSE 100 companies has increased sixfold, climbing to £73.9bn – a rise of £61.7bn from £12.2bn in 2008.
Oil and gas producers have stockpiled the most cash and they now account for more than a third of the FTSE 100’s cash piles even though they make up just a fifth of the FTSE 100’s total market capitalisation. But the increase has not been limited to one sector. In total, 17 sectors have seen gross cash balances climb over the period, compared with 13 that have seen them fall.
Commenting on the results, Justin Damer, commercial director of Capita Asset Services, said: “The credit crunch was a huge shock for firms used to running lean finances.
Companies re-engineered their balance sheets to a more defensive structure as the recession bit, paying off debt and stockpiling cash, diverting the funds from business investment, acquisitions or dividends. But they have continued to hoard cash even as the economy has gone up through the gears, and this will prove unpopular with investors, who resent companies sitting on huge cash piles earning low returns.
“With the economy back on its feet, the key question is what companies will do with their cash reserves – whether they will seek to boost investment, fund mergers or acquisitions, or return the money to investors. If the cash piles do go unspent for a prolonged period of time, there is the risk that government will turn their eye on them for some form of additional tax.”
Sally Percy is editor of The Treasurer