The Big Number -- WSJ
July 26 2016 - 3:04AM
Dow Jones News
7.4%
Combined capital spending and R&D expenditures as a share of
sales at U.S. companies
U.S. corporations are looking for better places to invest their
money other than plants, equipment, research or development.
Combined capital expenditures and R&D were 7.4% of sales at
more than 1,800 U.S. companies in 2015, according to data from
Credit Suisse Group AG. That is above the 6.4% nadir the companies
spent in 2010, but far below the 9.3% peak the companies clocked in
1991.
The ratio of combined capex and R&D for a comparable
universe of 815 Eurozone companies was 7.0% in 2015, down from
11.9% at its peak in 2000. Last year was the first time the
European companies spent a lower percentage of their sales on capex
and R&D than did their U.S. counterparts. Both U.S. and
European groups exclude financial companies and utilities.
"It does seem to suggest a lack of investment in future growth,"
said Rick Faery, global head of Credit Suisse's Holt Corporate
Advisory unit. "There has been a swing from investment in capex and
R&D and toward dividend increases and buybacks."
A combination of factors are likely at work. First, there is the
tepid macroeconomic outlook, especially since the financial crisis.
"There are low growth expectations everywhere," said Tommy Mercein,
Credit Suisse's global head of debt capital markets. "Revenue
growth will be slow. The yield curve around the world reflects
that."
There is also the growth of service industries and other
asset-light businesses. "There are a lot more companies that are
making investments in ideas rather than widgets," said Mr. Faery.
Think Twitter Inc. rather than General Motors Co.
Lastly, as interest rates have declined over the years, so too
has the weighted average cost of capital. That means companies
could probably earn a satisfactory return on the capital they spend
and R&D, if they would lower the hurdle rates they set for such
investment.
Mr. Faery said they probably haven't done so. "Companies are
very secretive and protective about those," he said. "Most
companies have not changed those hurdles in years and in some cases
decades."
--Richard Teitelbaum
(END) Dow Jones Newswires
July 26, 2016 02:49 ET (06:49 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Credit Suisse (NYSE:CS)
Historical Stock Chart
From Apr 2024 to May 2024
Credit Suisse (NYSE:CS)
Historical Stock Chart
From May 2023 to May 2024