Nigerian corporations entered the last quarter of the year boasting a record-breaking cash reserve of N2.3 trillion, marking the highest balance in recent memory.
This information was gleaned from an analysis of over 30 major companies listed on the Nigerian Exchange, spanning from January to December of the calendar year.
The compiled data excludes commercial banks and insurance companies, given their capacity to handle cash on behalf of their clientele.
The cash balances of the considered companies witnessed a substantial 27% surge from the N1.8 trillion reported as cash and cash equivalents at the close of 2022.
Notably, these entities collectively reported total revenues amounting to N8.05 trillion during the reviewed period.
This robust cash position serves as a testament to the liquidity of Nigerian businesses amidst a challenging year fraught with macroeconomic hurdles and subsequent monetary policy adjustments.
Furthermore, the nation experienced its highest-ever money supply, surpassing N66 trillion by the close of September 2023.
Data from the 28 largest companies listed on the Nigerian Exchange (NGX) reveals that the total cash reserves at the conclusion of the third quarter soared to N2.3 trillion from N1.8 trillion at the close of 2022.
On a year-on-year basis, the total cash balance was N1.3 trillion as of September 2022, compared to N1.8 trillion in December 2021.
In terms of cash flow from day-to-day operations, these companies accumulated revenues of N1.7 trillion by the third quarter of the year.
Impressively, all but seven of the 30 reviewed companies generated a positive operating cash flow, indicating their ability to convert sales into cash despite economic challenges and ensuring that the collected cash adequately covered operating expenses.
Dangote Cement, Seplat, MTN, and Dangote Sugar emerged as the frontrunners with the largest cash reserves.
Despite increased net cash from operations, some companies resorted to debt financing for survival.
As of the third quarter, the total outstanding debt for the reviewed companies stood at N4.9 trillion, up from N3.3 trillion at the end of 2022.
These substantial financial reserves offer both companies and investors a robust foundation amid ongoing macroeconomic challenges.
Investors can anticipate potential dividends and resilient share performance, given the increased cash reserves and the companies’ ability to navigate economic headwinds.
Looking ahead to 2024, these substantial cash holdings could serve as a strategic war chest, enabling companies to navigate uncertainties in a tightening monetary policy environment and capitalize on growth opportunities without excessive reliance on debt markets.
For companies, the decision to distribute cash as dividends or reinvest in operations and growth initiatives will be pivotal, shaping their ability to sustain performance and capitalize on an eventual economic upturn.
The noteworthy cash reserves provide a dual advantage: shielding against short-term macroeconomic turbulence and serving as a springboard for long-term strategic investments.
Companies that adeptly manage these reserves, balancing shareholder returns with strategic reinvestments, are likely to emerge as frontrunners as the economy stabilizes and enters a more secure phase in 2024.
Investors, in turn, will keenly observe and align with entities demonstrating fiscal prudence and strategic acumen in the face of prevailing economic conditions.
