Ezrati’s Economic Outlook: Cash-Rich Corporates

Company finances go from strength to strength, but to what purpose?

One of the great constants in this otherwise inconstant environment is the strength of corporate finances. Financial excesses and the need to deleverage concern governments and households, but not companies. The corporate sector actually came out of the 2008-2009 financial crisis and recession with its finances in good order and has only strengthened them since. The question now is how and when companies will deploy these impressive financial resources on capital spending, hiring and especially on the mergers and acquisitions (M&A) that typically proceed from strong corporate finances?

Huge cash holdings constitute the most impressive aspect of this financial strength. At the close of 2011, the most recent period for which complete data are available, cash on non-financial corporate balance sheets had risen to over $1.9 trillion, a jump of almost 60% from the dark days of 2008 and up more than 50% from the last cyclical peak in 2007. Cash and cash equivalents have risen so that today they constitute almost 13% of all corporate financial assets, up from 9.4% in 2008 and 9.1% at the cyclical peak in 2007. They amount to some 14% of all corporate liabilities, up from 9.2% in 2008 and 9.7% in 2007, and almost 12% of corporate net worth, up from 8.9% in 2008 and 8% in 2007.

About the Author

Milton Ezrati

Milton Ezrati

Milton Ezrati is senior economist and market strategist for Lord Abbett & Co. and an affiliate of the Center for the Study of Human Capital and Economic Growth at the State University of New York at Buffalo. His latest book, Thirty Tomorrows, linking aging demographics and globalization, will appear next summer from Thomas Dunne Books of St. Martin’s Press. See more of his articles about the economy here.

 

Comments

Advertisement. Closing in 15 seconds.