Amid Gloom, Balance Sheets Shine

When corporate giants like Citigroup (C Quote), Pfizer (PFE Quote) and Microsoft (MSFT Quote) report earnings this week, remember that companies have just scratched the surface when it comes to capital expenditures.

And when Caterpillar (CAT Quote), Schlumberger (SLB Quote), and Halliburton (HAL Quote) report, remember that high oil prices may take their toll on profits, but American companies have a historically massive cash cushion to absorb the high costs of materials.

Non-financial corporations had $1.324 trillion of cash on their balance sheets as of the end of the first quarter, according to Moody's. Corporate America's ratio of cash to total debt outstanding stood at 24.3%, which is off slightly from a peak at 25.2% in the fourth quarter of 2005, but still one of the highest measures since 1967.

In the best years of the last economic cycle, debt weighed much heavier on company balance sheets. The ratio of cash to total corporate debt was only 18% in the first quarter of 1996, according to Moody's.

All that cash means companies have a lot of spending power and more than enough in their pockets to justify doling out some shareholder dividends or buying back stock.

Non-financial companies spent $983.97 billion in the first quarter of 2006, according to the Commerce Department. Cash on hand is running at 135% of spending, down from 143% in the fourth quarter of 2006, but at the strongest levels since the early 1960s. In the first quarter of 1996, that ratio was only 90%.

"They aren't going to just put that cash in a checking account while their stocks go down," observes RealMoney.com contributor James Altucher, who expects more M&A activity, more stock buybacks, higher dividends and investment in R&D and infrastructure.

"All of those items boost stock prices and boost the economy," writes Altucher, a managing partner at Formula Capital, an alternative-asset management firm. "We haven't even really seen the effects yet of the massive cash that's sitting on the sidelines right now in corporate America. "