Cash positions weaken for rated US companies in Q2 2024

Liquidity for US companies rated by S&P Global Ratings weakened in the second quarter of 2024 after a stronger start to the year.

The median investment-grade-rated company reported cash and equivalents falling to 32.2% of total liabilities from 34.9% in the previous quarter, according to the latest S&P Global Market Intelligence data. This median cash ratio is a closely watched measure of liquidity and represents a company's ability to pay its short-term debt using cash and cash equivalents.

Companies continued to face higher costs of debt during the quarter as the US Federal Reserve held benchmark interest rates at their highest level in about 20 years. However, it has become increasingly likely that the Fed will begin a rate cutting cycle in September after economic indicators in August signaled cooling inflation and a rising unemployment rate.

The cash ratio for the median speculative-grade-rated company also declined in liquidity to 28.8% in the second quarter from 29.8% in the first quarter.

Median cash positions for both sets of rated companies remain above their 2023 low points.

Sector breakdown

Among investment-grade companies, median cash ratios rose for companies in six of 11 market sectors, with IT and communication services seeing the greatest gains in the second quarter from the first quarter.

The median cash ratio of IT companies increased nearly 27 percentage points to 74.1%, while the median cash ratio of communication service companies rose nearly 14 percentage points to 34.8%.

The healthcare sector had the largest drop in median cash ratio among investment-grade companies, falling to 95.4% in the second quarter from 135.1% in the first quarter.

For non-investment-grade companies, the median cash ratio increased only in the real estate, communication service and utility sectors on a quarter-over-quarter basis. The real estate sector had the biggest improvement with the median cash ratio climbing to 75.9% from 40.0%.