Capital Markets

Cash Outstrips Debt; VCs Showing Life

Amid increasing signs of a slowdown are growing indications of liquidity that could provide a pick-me-up for the economy.
Ed ZwirnSeptember 7, 2004

During the first quarter, “the liquid financial assets, or cash, of non-financial corporations approximated 23.7 percent of the group’s outstanding debt and 146 percent of the group’s fixed investment spending,” according to Moody’s analyst John Lonski. “The former was the highest such ratio since 1969, while the latter showed the steepest year-long cash coverage of fixed investment spending since 1962.”

In part, wrote the analyst, those high levels of cash and cash flow reflect heightened levels of business risk aversion caused by “the bursting of the speculative bubbles of 1998-2000,” the increased focus by corporations on complying with stricter governance rules, unexpectedly high oil prices, possible disruptions in crude oil supply, and “Presidential election risks.”

Risk-averse or no, the current economic outlook is “brighter than otherwise because of atypically high levels of cash and cash flow relative to capital expenditures,” added Lonski.

In other good economic news, the venture-capital industry has licked the wounds it sustained when the bubble burst and “is stirring back to life,” according to an article in The New York Times.

Investments by venture firms rose 22 percent, to $5.8 billion from $4.7 billion a year earlier, in the second quarter of this year, according to a survey by PricewaterhouseCoopers, Thomson Venture Economics, and the National Venture Capital Association cited in the article.

For all of 2004, analysts cited in the article project an 11 percent increase in investments, to $20 billion, from $18 billion in 2003, still well shy of the $108 billion seen in 1999. “It’s as though the turtle got out of its shell, looked around, and decided it was safe to go out,” said Jesse Reyes, vice president for global research for Thomson Venture Economics, according to the Times.