In the New Normal, where fundamentals ceased to matter some time around March 2009 when Bernanke decided to nationalize first the bond, then the stock market, and soon, every other “market”, stuff like “data” is largely meaningless. However, for those who are still curious how the cash flow in the biggest corporate market – that of America – looks like, instead of merely chasing the latest trend or looking for a heatmap break out, here it is.
Using Factset data for the 1500 largest stocks (ex fins), Morgan Stanley has broken down the world’s biggest Income Statement by line item (and by sector). The results are as follows.
- Of the $12 trillion in total revenue, nearly $6 trillion each year is the cost of goods sold for consumer companies (discretionary plus staples), energy, and industrials.
- Gross profit (net of COGS and D&A) is just 27% of revenue, or a little over $3 trillion.
- Consolidated income tax is a tiny 2.5% of revenue. Of all sectors, Energy companies paid the most taxes in FY 2012: $89 billion.
- Interest expense was a tiny $215 billion. It is here that the bulk of EPS “generation” has taken place in the past two years now that companies have fired the bulk of the “fat”, courtesy of constant refinancing into an ever cheaper cost of debt. A historical analysis of the interest expense line item shows a constant decline. At some point, this number will start rising again, especially if indeed the Fed wishes to see rates rise. At that point, there will be only downside for the market’s Net Income, despite what paid financial-humor pundits say to the contrary on TV.
The same chart as above broken down by industry:
Source: Morgan Stanely