As the credit markets froze during the height of the financial crisis, companies who relied on the short-term debt markets to finance their day-to-day operations quickly learned the importance of having liquidity on their books in the form of cash. Even the healthiest companies found themselves struggling to pay their employees due to the credit crunch.
However, the financial markets have improved significantly since the crisis.
Bank of America Merrill Lynch’s Michael Hartnett just published this chart showing investors’ evolving attitudes toward corporate cash.
And it tells us everything.
As you can see from the dotted line, during the financial crisis, investors wanted companies to use their cash flows to slash debt and build up their cash positions.
After the crisis, we were left with a global economy in critical condition with limited growth prospects. As you can see from black line trending up, investors wanted their shareholder value returned in the form of dividends and buybacks.
But in more recent months, you can see a burst of optimism manifesting in the blue line, which represents the desire for more capital expenditures. In other words, investors want companies to take some risk and invest in growth.
This is a very clear shift in investors attitudes toward cash deployment.
Photo: Bank Of America Merrill Lynch