The Mountain of Corporate Cash (Part 2): Cash Balances vs. Profits

In part one of “Is the Mountain of Corporate Cash an Illusion?” I argued that the growth in corporate cash balances is not as dramatic as is often reported by analysts, commentators, and the press. In this post, I’ll show that corporate cash balances are actually growing more slowly than profits.

Some quick statistics from the U.S. Bureau of Economic Analysis: U.S. corporate profits since 2007 have grown at a compound annual growth rate (CAGR) of 10.58%, versus a CAGR of 8.74% for liquid assets. By these measures, one could legitimately argue that, if anything, corporations’ cash balances have been dropping relative to profitability. Read more.