Yesterday we analyzed here aggregate capital spending on tangibles for non-financial constituent companies in the MSCI World Index (90% of global investible market cap). We found that CapEx as a % of sales has been extremely steady over the last nine years, fluctuating in a 0.9% range. In 2013 CapEx as a % of sales, at 7.9%, registered the second highest reading over the 9 year period.Today we thought we'd follow up that quick analysis with a deeper look at corporate use of cash flow from a variety of angles (by region, cap size, with financials, ex financials). We find that no matter how we slice and dice the data we get the same result. The total USD amount of CapEx spending as a percent of either sales or operating cash flow is currently average to above average compared to the last 9 years.
Another point on stock buybacks is the following: yes, some companies have been buying back stock. However, this is primarily a US phenomenon and the allocation of operating cash flow to buying back stock (including for the US) is well below where it was at the end of the last cycle (perhaps not the best comparison, but it is what it is). It does appear that, to a large extent, share buybacks are being financed with debt issuance, but again, not to the same degree, in aggregate, as in 2006-2008. When we break down non-financial North American stocks into two groups (the vary largest 46 and the smallest 530), we find pretty clear evidence that the financing of stock buybacks with debt is concentrated in the smaller subset of companies. The largest 46 companies have bought back a cumulative $473bn in stock from 2011-2013 and issued a cumulative $100bn in new debt. The smallest 530 companies have bought back a cumulative $433bn in stock from 2011-2013 and issued a cumulative $454bn in new debt. Needless to say, we are sure there are more productive uses of cash flow than buying back one's stock, especially at the expense of one's balance sheet.
All companies in the MSCI World Index:
MSCI World ex financials:
MSCI North America:
North America ex financials:
MSCI Europe ex financials:
MSCI Pacific ex financials:
Just the largest 200 companies in the MSCI World Index by market cap (50% of the MSCI World Index):
Smallest 1411 companies in the MSCI World Index:
MSCI North America largest 46 companies ex financials:
MSCI North America smallest 530 companies ex financials: