The latest report from Counterpoint Global examines how much cash companies should hold, focusing on issues related to capital allocation and capital structure. The report presents data showing that since 1990, public companies in the United States have increased their cash holdings. This trend is largely attributed to a shift toward sectors that invest more in intangible assets.
The authors of the report, Michael Mauboussin, Head of Consilient Research and Managing Director at Counterpoint Global, and Dan Callahan, Vice President at Counterpoint Global, explore several reasons why companies maintain cash reserves. They note that holding cash can be seen as non-productive because it reduces return on invested capital. However, it also provides flexibility for future investments that may create value.
The analysis reveals a positive correlation between higher levels of cash holdings and greater investment in intangibles, smaller company size, higher concentration within a company, and being in the early stages of the business life cycle.
“Counterpoint Global’s culture fosters collaboration, creativity, continued development, and differentiated thinking,” said Michael Mauboussin.
The report also discusses what options are available to companies if they decide to disburse excess cash.
A section on risk considerations highlights that there is no assurance a portfolio will achieve its investment objective. Portfolios are subject to market risks including economic events such as natural disasters or social unrest. The document notes that investments in foreign markets carry additional risks like currency fluctuations and political instability. Investments in emerging markets present even greater risks compared to developed countries. Privately placed securities may be harder to sell due to restrictions and lack of information, increasing liquidity risk. Derivative instruments could lead to larger losses and may significantly affect performance.
Dan Callahan stated: “There is no assurance that a Portfolio will achieve its investment objective. Portfolios are subject to market risk, which is the possibility that the market values of securities owned by the Portfolio will decline and that the value of Portfolio shares may therefore be less than what you paid for them. Market values can change daily due to economic and other events (e.g. natural disasters, health crises, terrorism, conflicts and social unrest) that affect markets, countries, companies or governments. It is difficult to predict the timing, duration, and potential adverse effects (e.g. portfolio liquidity) of events. Accordingly, you can lose money investing in this Portfolio. Please be aware that this Portfolio may be subject to certain additional risks. In general, equities securities’ values also fluctuate in response to activities specific to a company. Investments in foreign markets entail special risks such as currency, political, economic, market and liquidity risks. The risks of investing in emerging market countries are greater than risks associated with investments in foreign developed countries. Privately placed and restricted securities may be subject to resale restrictions as well as a lack of publicly available information, which will increase their illiquidity and could adversely affect the ability to value and sell them (liquidity risk). Derivative instruments may disproportionately increase losses and have a significant impact on performance. They also may be subject to counterparty, liquidity, valuation, correlation and market risks. Illiquid securities may be more difficult to sell and value than public traded securities (liquidity risk).”
The views expressed in the report reflect those of its authors as of August 5th 2025 but do not necessarily represent all investment personnel at Morgan Stanley Investment Management or its affiliates.
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