Large cap companies on the S&P 500-stock index have shrunk their liabilities by 8.2%. Liabilities comprise of short and long term debt owed by the company, along with other financial obligations like the company’s contribution towards the pension funds. This trend is an indication of how companies have been shedding off the extra baggage to survive better in the hard times.
Even though on an average the liabilities have gone down, you can find large companies on the index who have both added and taken off liabilities from their balance sheets. Over the past year, 218 companies have taken off a sum of 285 billion dollars from their balance sheets. On the other hand, there are 194 companies who have gone the other way and added some 309 billion dollars of liabilities.
Most of the increase in liabilities is attributed to acquisitions companies have made in the last year. With the valuations of companies hitting a low, many large cap companies saw an opportunity to make some strategic acquisitions at the right time. In almost all industries, both trends of adding and cutting down liabilities were seen over the last one year.
Amongst the major companies, Time Warner and GE cut a lot of flab to stay trimmer and fitter. Time Warner reduced its liabilities by almost 53%, cutting them down by about 36 billion dollars. They claim that this would now allow the entertainment giant to spend more on new movies and TV productions, and allow them to focus on careful and strategic growth.
Another big company who opted to cut down on liabilities was GE, which was facing financial pressures during the recession. They cut down their liabilities by 4%, that is by 27.5 billion dollars. They too will now be working towards a more focused approach to running and growing the business.
This approach of companies stands in contrast to the country’s current fiscal status. The federal government’s debt had risen by 19% at the end of last year with an outstanding of 11.9 trillion dollars. Even though Americans have been spending in a controlled fashion and are doing everything to cut down their debts, they still owe a massive 2.5 trillion dollars in debt. But the good indicator is that this number is actually 4% down since 2008 end. Companies are surely and steadily restructuring their finances to emerge out healthier and the Americans are also slowly following the suit.