Question

Why do you think cash balances among non-financial companies listed on the S&P are so high? Should they be higher given the reduced cash coverage of outstanding debt?

Answer 1

Cash holdings in non financial companies are in high in number , could be because of the possibility of firm's growth and it's expansion, or it could be effected by the economy's inflation. Unlike financial companies, the non financial companies will face higher possibilities of insolvency and liquidity issues, as these are not completely regulated under any banking governance. So chances are that to keep as much cash as holdings as available so that it can be credited in the failing times where accessing the credit outside can be late, or smaller in portion. In case of outstanding debt, the company needs to take an intellectual step to cover the old debts by using the revenue or cash standing by and attempt to reduce the intake of debt unless it's necessary. So, company decides how much it needs to maintain cash holdings in case of insolvency or in the times of business failure and also ensures to maintain cash coverage in order to meet the debtor's credit. Higher cash holdings could be resolving the debt issues to the company.