Businesses have remained cautious in Canada’s slow-growth environment.
According to Statistics Canada data, corporations have generally been trying to increase their cash balances since 2010’s second quarter after drawing down their reserves between 2008 and 2010’s first quarter.
As a result, corporate balance sheets have become the strongest they’ve been in 20 years.
A TD Economics report noted corporate debt-to-equity ratios and liquidity have vastly improved, driven by solid asset growth and strong profitability.
While companies have been building their cash balances since the onset of the financial crisis in 2008, the report suggested this has been a trend since at least 1990 and has only been accelerated since 2007.
The report said lower corporate profits in the near term are likely to keep asset growth “modest” and companies are likely to prefer strengthening their cash balances for at least the next six to nine months. But at some point, businesses will need to invest more into fixed assets, versus giving more cash back to investors through dividends.
Noted the report: “Over the medium-term, the healthy standing of corporate balance sheets will likely lead to a stronger pace of business investment and overall real GDP growth for the Canadian economy.”
