Cash Up, Debt Down

4/26/2010


After a recession sparked in part by a credit crunch, the state of corporate balance sheets matters to investors.

Over the last 12 months, the cash holdings of nonfinancial companies in the S&P 1500 Index rose 28%. At the end of the most recent quarter, the index companies held nearly $1.2 trillion in cash.

That cash represents 11.0% of the stocks’ market value, up from 8.7% a year ago. For all nine nonfinancial market sectors, cash is higher as a percentage of stock-market value than the 15-year average. Cash holdings increased for all but two sectors, energy and telecommunications. Seven sectors delivered double-digit gains.

HOLDING MORE CASH
Cash as % of
—— Stock-Market Value ——
S&P 1500 Sector
End of
Dec.
(%)
15-Year
Average
(%)
Consumer Discretionary
12.7
8.9
Consumer Staples
5.4
3.0
Energy
5.1
4.4
Health Care
13.5
7.7
Industrials
12.8
6.0
Materials
8.8
5.3
Technology
16.8
10.9
Telecom
5.6
4.1
Utilities
6.1
5.8

We also see good news on the debt front. Total debt for the index’s nonfinancial stocks fell 1% over the last year. In all seven of the nonfinancial sectors that increased their cash holdings, cash rose faster than debt.

While it is dangerous to extrapolate market trends to individual stocks, balance sheets marketwide are improving.


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