March 2014: Capital Allocation

As a result of the global economic recovery and subsequent increase in business activity, corporations are accumulating record levels of cash on their balance sheets. While this may seem like a good problem to have, cash is not a return-generative asset and can be a drag on shareholder returns, especially in the current economic environment. Struggling to recover from the 2008-09 financial crisis, global central banks have lowered short-term interest rates to near zero percent. Subsequently, large corporate cash balances are under increased scrutiny due to their low-to-no return profile. We recently returned from our annual trip to CAGNY (Consumer Analyst Group of New York) where this topic received considerable coverage in CEO and CFO presentations.

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