The balance sheets of the S&P 500 Industrials are in better shape than they’ve been in decades, according to a study by Standard & Poor’s.
At these top industrial companies, the level of cash and cash equivalents has reached an all-time high, according to S&P, and cash is 7.7 percent of total market value, a level the ratings agency has not seen since 1988.
The record cash levels “are the direct result of the 12 consecutive quarters of double-digit earnings gains and the lack of new investment,” said S&P equity market analyst Howard Silverblatt, in a statement. “The bulge in cash is permitting companies to simultaneously finance record levels of stock buybacks and dividends.”
Silverblatt also pointed out that the ratio of cash to long-term debt is near its highest point since 1980, when Standard & Poor’s began to track the statistic; the ratio of cash to combined current liabilities and long-term debt is currently 50 percent above its 25-year average; and cash is currently 1.7 times net income.
“Many companies now have the rare opportunity to make long-term investments or return large values back to shareholders, while still having sufficient cash left to grow and finance their business,” he also stated.
For the remainder of 2005, Standard & Poor’s expects cash levels to drift slowly downward, as companies continue their record buybacks and dividends. The rating agency also stated that it expects higher spending on mergers and acquisitions, and for companies to invest more in capital expenditures and employment.