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Why Does U.S. Steel Have So Much Cash on Its Balance Sheet?


Feb. 20 2018, Published 1:33 p.m. ET

Balance sheet

Previously in this series, we’ve looked at steel companies’ leverage ratios. In this article, we’ll look at their liquidity ratios. It’s pertinent for companies to keep ample liquidity. However, too much liquidity can also be seen as a sign of improper capital management.

ArcelorMittal (MT) has a current ratio of 1.25, based on its 4Q17 financial data. You can define the current ratio as current assets divided by current liabilities. A ratio above 1 is generally seen as healthy. U.S. Steel Corporation (X) has a current ratio of 1.75, while AK Steel’s (AKS) current ratio is 1.83, according to the most recent financial data. Nucor (NUE) and Steel Dynamics (STLD) have a current ratio of 2.42 and 4.04, respectively. Steel Dynamics has the highest current ratio in our select group of steel companies, while ArcelorMittal has the lowest current ratio.

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Cash holdings

As of December 31, 2017, U.S. Steel had cash and cash equivalents of $1.5 billion. To put this number in context, consider that Nucor’s cash holdings were $1 billion while ArcelorMittal’s cash and cash equivalents totaled $2.8 billion as of the end of 4Q17. U.S. Steel’s cash balance looks higher than Nucor and ArcelorMittal’s.

However, remember that U.S. Steel is investing $2 billion under a multi-year program to modernize its facilities. The company is likely maintaining a high cash balance to take care of its capital expenditure plan. Notably, while healthy steel market conditions have helped U.S. Steel generate positive free cash flows for the last two years, the company might want to play it safe, looking at the steel industry’s cyclical nature.

Yet, as steel companies’ cash flow generation capacity has improved, they might have to take another look at their capital allocation plans. In the next part of this series, we’ll see what different steel companies had to say about their capital allocation plans on their 4Q17 earnings calls.


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