Volume 23, No. 6

Follow The Cash:  S&P 500 Offshore Balances:  Two trends have been widely observed over the past few years: the mounting cash balances on corporate balance sheets, and the untaxed foreign earnings phenomenon. Those trends are related. It’s easy for corporate managers to blame their high cash levels on a hesitancy to grow capital investment because they don’t trust the economy. Those cash balances are compounding not only due to a lack of spending, however, but also because the cash is being generated in countries where the earnings that produced the cash must be reinvested. It puts the lie to managers who have complained about the economy as a reason for not committing to investment:  they’re actually committing to overseas reinvestment.

U.S. GAAP accounting and disclosure standards do not require firms to disclose the home of their cash balances. In the past several years, the SEC has encouraged companies to make more disclosures in the Management’s Discussion & Analysis section about where cash is domiciled. About half the companies in the S&P 500 have voluntarily disclosed information about the degree to which their cash resides overseas. This report reviews the results of those disclosures.

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