The FTSE 100 (FTSEINDICES: ^FTSE) rallied 44 points to 6,628 during early trade this morning after a new report claimed members of the blue-chip index had lifted their aggregate cash position by £42bn since 2008.
The study by Capita Asset Services, a financial administrator, claimed the balance sheets of FTSE 100 companies now carried cash and cash equivalents of £166bn, some 34% more than that seen five years ago.
The report also revealed short-term debt within the FTSE 100 had reduced from £112bn to £92bn during the same time. However, total long-term debt has advanced by £33bn to £333bn.
The study, which excluded financial companies such as banks and insurers from the calculations, said the technology, telecommunications and oil and gas sectors had all doubled their gross cash levels since 2008.
Justin Damer, the commercial director of Capita Asset Services, said:
“The credit crunch was a huge shock for firms used to running lean finances. Companies re-engineered their balance sheets to a more defensive structure as the recession bit, paying off debt and stockpiling cash, diverting the funds from business investment, acquisitions or dividends.“
“With the economy back on its feet, the key question is what companies will do with their cash reserves – whether they will seek to boost investment, fund mergers or acquisitions, or return the money to investors.“
Mr Damer also said the £166bn gross cash balance held on blue-chip balance sheets was more than double the £72bn expected to be paid as dividends by FTSE 100 companies during 2013.
At present, the FTSE 100 trades on a yield of 3.55% and a P/E of 15.
Of course, whether that valuation, today’s study about cash balances and the general outlook for British large-caps all combine to make the FTSE 100 a ‘buy’ right now is something only you can decide.
