Corporates’ Limited Cash, Investment Disclosure Comes With Risks, Analysts Warn

Corporate finance is breaking records with its M&A activity this year, thanks, in part, to rising cash reserves. But according to news reports on Thursday (Sept. 28) in The Financial Times, companies aren’t always entirely disclosing those cash piles, and it’s leading to heightened risks for those businesses.

The publication described the disclosure of cash reserves and other investments as “patchy,” with regulators requiring only vague disclosure by some of the nation’s largest companies, like Apple, regarding cash.

“Patchy disclosure is a fundamental problem,” said Shivaram Rajgopal, vice dean for research at Columbia Business School, in an interview with the FT. “These are broad categories, and you don’t know what’s in there. You don’t know what the credit ratings are. And these are big numbers.”

According to reports, Apple has secured a valuation of about $800 billion, due in part to its cash reserves and other investments.

“However,” the publication wrote, “in contrast to the disclosure by investment firms, Apple offers investors only the broadest brush strokes of what the money is actually in.” Apple reportedly has the largest stockpile of cash and investments by a U.S. non-financial company, but details on what, exactly, those investments are remain scarce.

The Financial Times’ analysis suggests more than $10 billion is in cash and other securities.

Coca-Cola and PepsiCo, in contrast, disclose less information than Apple, the publication said.

Thirty companies, including General Motors and Pfizer, have, combined, nearly $900 billion worth of U.S. debt and equities, with a combined portfolio of more than $400 billion in corporate bonds.

Rising cash reserves and securities holdings make it “very difficult for investors” to understand whether a company is properly valued, according to University of Washington Foster School of Business Professor Thomas Gilbert, who spoke with the FT.

Part of the problem, analysts said, is that while some investments are thought of as “safe as hard cash,” the risks linked to those investments can have a profound impact on corporate finances. Apple told the Securities and Exchange Commission (SEC) last year, for example, that an 1 percent interest rate increase would lead to $4.9 billion in losses on its holdings. But experts noted that even when companies disclose these risks to the SEC, details are scarce.