Cash Stats Getting Extreme

Posted by: Howard Silverblatt on September 12, 2010

Q2 2010 Cash and Equivalents for the S&P Industrials (Old) posted a seventh consecutive quarter of record holdings ($842.5 billion, up from $836.8 billion in Q1,’10). On aggregate, the value now represents 11.13% of current market value, 75.6 weeks of 2010 estimated operating income, 5 times the annual dividend payment and 4.4 times the last 12 months of buybacks. Cash flow growth for Q2,’10 (preliminary) over Q1,’10 actually outpaced operating earnings: 10.42% vs. 9.94%.

While there have been signs of increased spending in Q3, with decreased earnings estimates, the current level of cash available to companies, either in aggregate or as a comparative metric, has reached an unprecedented level, permitting them for the first time in memory to undertake multi-actions simultaneously. The reality of the situation, however, is that at this point in time they have chosen not to do so. They have prudently increased dividends, maintained buybacks at a required level to neutralize earnings dilution due to options, invested in required maintenance, and selectively started to participate in M&A in a manner more centralized on enhancing current product lines than expansion.

Given the current uncertainty over economics, politics, expenditures, taxes, and consumer actions, my observation is that, unfortunately, from a corporate view it is difficult to find fault with their prudence. Given the current profitability level and environment, the risk-reward trade off appears to support their actions, and until that climate of uncertainty clears up, for better or for worse, increased spending and job creation will be difficult to obtain. And as stated, no jobs means no recovery.

There are 376 issues in the S&P Industrials (Old). Of the 368 issues with full compatible data -
131 issues (35.6%) have more cash than LTD, with 55 (14.9%) of them having more cash than LTD and Current Liabilities combined
181 issues (49.2%) have increased their cash holdings at least 20% over the past year
222 of the 258 (86.0%) dividend payers in the Industrials have more cash than their annual dividend rate
214 of the 251 (85.3%) that reported buybacks had more cash than their last 12 months of buybacks
With 192 issues (76.5%) having more cash than their combined dividends and buybacks (note 64 of the 192 do not pay a dividend)
232 issues (63.0%) had at least 52 weeks of estimated 2010 operating income in cash, with 126 issues (34.2%) having at least 104 weeks - 2 years
69 issues (18.8%) have over 20% of their market value in cash

Information Technology has cash equal to 18% of its market value and 125 weeks of estimated 2010 operating income

IT has a cash to dividend coverage rate of 17 and a buyback coverage rate of 5.35
The top four holders of cash are in Information Technology, with three of them not paying a dividend

Cisco Systems had the largest holdings of cash and equivalents, with $39.9 billion, which represents 33.8% of its market value, four times its 2011 street operating estimate (July,’11), five times it’s last four quarters of buybacks and infinity over its Nil dividend rate (Note that General Electric had $73.8B in C&E, but $61.4B is in the credit company, and we are looking for cash that is free and clear to spend)

For the full S&P Industrials:
Q2,’10 Operating earnings are up 9.94% from Q1,’10 and 38.62% from Q2,’09, with cash flow up 10.42% and 15.86% respectively
Q3,’10 operating earnings is estimated to be up 20.6% from Q3,’09, but down 3.4% from Q2,’10

See file for additional data
SP_CASH_20100910.xls

Reader Comments

jjw

September 14, 2010 8:57 AM

yet, they can't find a little to increase workers pay.... Why am I not shocked?.. Time for a MAJOR LABOR STRIKE !!! The gossip in the trenches is ' I am on a work slow down and if they don't like it TOO BAD !!!'

Darren

September 14, 2010 9:23 AM

Looks like they will have lots of cash to buyback more shares rather than invest in new projects.

gelo

September 20, 2010 2:45 PM

Sad but true.


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CEO as heard in the Boardroom

September 20, 2010 10:14 PM

Let's see, shall we pay some dividends? Shall we give out some raises? Shall we put some capital equipment back into our factories? Tell you what, fellow board members, let's just split this up amongst ourselves!

Nigel

September 28, 2010 3:22 AM

Learn to Trade markets both up and down and then you've got control of your future. Unless your in the boardroom, voting to give yourself another bonus, you've got no control.

Tom C.

September 28, 2010 10:13 PM

I think you're absolutely right. Until our current economic climate improves, any kind of job creation will be difficult to achieve.

Tom C.
Baltimore Financial Planning

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About

Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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