European, US firms hoard Us$1.2tril cash
LONDON: Elite companies in Europe and the United States are hoarding US$1.2 trillion of cash on their balance sheets, potentially missing opportunities to cut debt, reward faithful investors or accelerate their growth, a survey showed.
In its Annual Working Capital Management Survey, auditors Ernst & Young found that 2,000 of the largest US and European firms were keeping the sum – equivalent to nearly 7% of their aggregated sales – unnecessarily tied up in working capital, amid fears of a fresh credit squeeze or economic downturn.
“While there have been signs of corporate confidence in the global economy, macroeconomic uncertainty in Europe has left many businesses and financial institutions cautious on financing and growth,” said Jon Morris, head of working capital management at Ernst & Young for Europe, Middle East, India and Africa.
“Now’s the time for companies to challenge their working capital performance and seek effective strate- gies to free up excess cash from the balance sheet to reduce net debt, fund growth or business transformation or even return value to shareholders,” he said.
Efficient working capital management ensures that a company has sufficient cashflow to meet its shortterm debt obligations and operating expenses. But poorly managed cashflows resulting in either a surplus or shortage of working capital are potentially harmful to a company. — Reuters