Technology Cash Machines

You’d be uncomfortable if you didn’t have enough cash to pay your bills, right? Well its the same story for companies–its good to have cash to cover your short term liabilities. I was curious how balance sheets looked today by a measure called the cash ratio, which is a convenient measure of short-term liquidity. The results revealed an amazing trend in one corner of the market… 

The cash ratio is calculated as cash (and short term equivalents) divided by all current liabilities, where current liabilities are short term debt, accounts payable, income taxes payable, and misc other items. 

So how do stocks look? Do they have their liabilities well covered? Here is what the market’s cash ratio looks like over the past few decades (higher is better)

Pretty damn good looking trend, eh? Well, the market has changed a lot. The majority of this trend is coming from one sector: cash rich technology stocks. Here is the same ratio broken out by sector:

These technology companies are like Scrooge McDuck, swimming in dough. All U.S. listed technology stocks are sitting on more than $800 Billion in cash and short term equivalents…almost double the next closest sector.  Oh, and these numbers don’t include long-term investments (Apple alone has $130B categorized as long term investments, which many consider part of their cash hoard). 

as of 11/30, all U.S. listed stocks, Cash + Short Term Equivalents

as of 11/30, all U.S. listed stocks, Cash + Short Term Equivalents

Any thoughts on this trend? I am amazed by the ability of these technology firms to generate cash without significant liabilities. No wonder Silicon Valley is booming.