M&A and Underwriting bankers are all too familiar with a Sources and Uses of Cash analysis (and yes, for our NYT readers, this is far more popular, practical and worthwhile than a DCF). Yet we had never seen an Sources and Uses conducted for the entire market prior to this table created by Goldan Sachs, which demonstrates succinctly and to the point precisely how roughly $2.25 trillion of cash was raised in 2009 by the S&P 500 (ex Fins and CNBC parent General Propaganda), and what this cash was used for. It is not surprising that nearly 50% of cash was generated from operating cash flow ($1 trillion) while $600 billion came from new debt issuance (the rest from asset disposition). Yet despite consistent claims that companies have massive deleveraged, just $635 billion of debt was repaid, meaning only $35 billion of debt was actually retired! What the flow was used for, however, was to extend maturities, and to shift debt across different sections of the S&P500's balance sheet, lowering the debt cost of capital. And while $400 billion in new cash was used for CapEx (far less than the recent historical average), only $189 billion was put to use in the form of dividends: a fact that shareholders are certainly not too happy about. In a comparable operation, while just $63 billion of new equity was issue, double that amount was bought back, thus boosting EPS by reducing the denominator. Yet total shareholder friendly cash in 2009 (dividends and buybacks) amount to just over $300 billion: a small fraction of the total $2.25 trillion used by companies for various purposes.
Incidentally, Zero Hedge is awaiting the end of the Q2 reporting period to repeat the same type of CapEx analysis we conduct every quarter in an analysis to see whether companies are finally spending more monay for organic growth (typically a precursor to hiring), or merely stockpiling ever more cash.
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