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We ask again: Where is Cash on Corporate Balance Sheets?

January 4, 2012

In August last year, we had written a piece “GE and notion of Cash on Corporate Balance Sheets” (See  https://crediteye.wordpress.com/2011/08/02/general-electric-the-notion-of-cash-on-corporate-balance-sheets/ ).  Through the example  of GE, we hypothesised that the cash on balance sheets of US companies is not real (that is cash which can be used for M&A or capital expenditure without putting the long term health of a company at peril).   More evidence of our hypothesis comes from a recent Credit Suisse report.  At the end of 2007, S&P 500 companies had fully funded their pension liabilities.  The deficit of the pension plans is now $450 billion ($250 billion at the start of 2011).  This deficit is 26% of all pension liabilities.  Only a serious bout of inflation and jump in government bond yields can get the value of the liabilities to fall.

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From → Credit Analysis

One Comment
  1. Pension accounting rules, which mark to market on the liability side but not on the asset side, will always create volatility in the funded status…that statistic should be taken with a grain of salt.

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