Companies have generally tended to stay away from risk since the global financial crisis.
This has meant less investment, capital expenditure and quieter merger and acquisition activity.
Another consequence, according to analysis by Deloitte, is that corporate Australia is holding an unusually high amount of cash.
Just 32 companies from the ASX 200 have between them hoarded $57 billion, or about 80% of the Australian corporate stash.
This record cash pile is leading to weak performance and destroying shareholder value, according to Deloitte’s research.
Deloitte’s report, The Australian Cash Paradox, says companies need to use their cash to re-focus on growth as well as mergers and acquisitions.
Robert Arvai, Deloitte Mergers and Divestments lead partner, says companies holding the majority of the cash war chest are actually growth laggards.
“And lazy capital is delivering lazy growth,” he says.
The cash reserves of the 200 largest companies on the ASX, excluding those in the financial services sector, are $70 billion. This has built since 2009 when cash reserved jumped to $46 billion in 2009 from $24 billion the year before.
Most of this is held by the miners (39%), followed by consumer businesses (18%) and industrials (18%).
Deloitte calculates that cash-rich corporates have been underperforming, as measured by quarterly revenue growth and share price performance, by a factor of three compared to companies with relatively small cash-holdings.
Small cash-holding companies have a five-year compound annual growth rate of 6.5% compared to large cash-holders with 1.9% .
“So, it’s time to address the cash paradox in corporate Australia and for cash-rich companies to re-evaluate their yield versus growth strategies,” Arvai says.
“Looking ahead, winners will likely be those that understand the cash paradox, take a long term outlook, and are decisive and steadfast in their pursuit of growth.”
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