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Cash usage changes examined in report.

In a new study, Thomson Financial examined how S & P 500 companies use cash flow, how the use of cash varies by sector and how cash use trends have evolved over the past 10 years. The report also examines the pros and cons of various cash use strategies.

Thomson found that the largest U.S. companies are carrying less cash on their balance sheets than they were two years ago, when cash and cash equivalents peaked at over $926 billion. This amount had fallen to $850 billion by the end of 2006. Still, cash holdings remain sharply higher than they have been at any point before 2003. Cash use trends have also changed significantly over the past 10 years:

* Companies have lowered the percent of cash used for capital expenditures. Utilities and telecommunication services have allocated the most cash towards capex, with average investments of 90 percent and 73 percent of cash flow, respectively, over the past decade.

* M & A activity has increased dramatically in the past two years, and remained strong through at least mid-2007. The technology sector remains the leader in M & A, followed by consumer goods companies and financial firms.

* Both the percentage of cash used for buybacks and the dollars spent buying back shares spiked in 2006 and appear to be moving still higher in 2007. This trend of buying back shares is occurring across all sectors, though healthcare firms have spent the most (as a percentage of cash flow from operations) during the past decade, averaging around 26 percent.

* Dividend payouts have also increased. However, they account for a noticeably smaller percentage of cash flow from operations than buybacks do, and dividend payments appear to be concentrated among larger-cap companies.

Over the past 10 years, the health-care, utilities and consumer staples sectors have been nose-to-nose in their respective dividend spending; each sector spent approximately 27 percent of their cash flow on dividend payments.
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Title Annotation:CASH MANAGEMENT
Author:Marshall, Jeffrey; Heffes, Ellen M.
Publication:Financial Executive
Date:Oct 1, 2007
Previous Article:Editor's page.
Next Article:Study: companies strain to service employees.

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