The Business Cycle: A Corporate Checklist


Making a list and checking it twice … Have you ever stopped to make a checklist just to be able to check things off you’ve already done?  I will admit I have done that on more than one occasion.  I love checklists, they keep me focused throughout the day at work and at home.  While corporations utilize checklists, they go by different names like agendas, goals or even vision statements.  Coming out of 2008, many corporations didn’t have a choice as to the items on their checklists.  They had to get financially healthier and fast because they were in the worst spot of the business cycle!  Following are some of the steps many corporations had to follow.

✔ Improve balance sheets by reducing the amount of outstanding debt

You can see the ratio of debt to equity is now below even long term averages.

Source: Standard & Poor’s Compustat, JP Morgan Asset Management

✔ Horde cash to be ready for the unexpected

Companies have nearly doubled the amount of cash on hand over the past decade.

Source: Standard & Poor’s Factset and JP Morgan Asset Management

✔ Buyback stock and increase dividends

Dividends paid are reaching record levels for the past decade and stock buybacks are getting close.

Source: S&P Dow Jones Indices

❍ Increase capital spending

Notice the final item on the checklist has yet to be checked.

Our economy is nearing the expansion/growth phase and this capital spending by companies is usually one of the later occurrences in the business cycle.  So, while I would love to check off the last item on the checklist (almost nothing makes me feel better) doing so could bring us closer to the next stage in the business cycle and closer to possible recession.

Angela Palacios, CFP®is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well asinvestment updates at The Center.

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