A good reason for the Canadian equities markets’ strong performance this past year is the strength of corporate Canada’s balance sheet.

Outperforming Wall Street reflects not only corporate Canada’s balance sheet strength, but also its steady cash position. And despite the recession’s impact, corporate Canada’s cash has more than doubled since 2004, with total assets and shareholders’ equity rising by a bit less.

There are other reasons for Canadian stocks’ great performance this past year, of course, such as strong resources prices and a sturdy banking system. But balance sheet strength during a recession is a beautiful thing.

With sales growth weak — if there is any growth, that is — and credit difficult to get, a company with adequate cash in the till has a great advantage: readiness to deal with unexpected risks.

In this report, Invest-ment Executive compares two things: cash as a percentage of total assets and shareholders’ equity as a percentage of total assets.

An examination of the balance sheets of 103 listed companies at midyear 2009 and at yearend 2004 has revealed the following:

> As a proportion of total assets, corporate Canada’s cash position in 2009 was better than it was five years ago. The average cash position as of midyear 2009 was 4.5% of assets. That is better than the average of five years ago, which was 4%.

> Balance sheets remain strong, as measured by shareholders’ equity as a proportion of total assets. This shorthand approach to gauging balance sheet strength shows the shareholders’ equity of companies averaged 43.1% of total assets at midyear 2009, down slightly from 45.4% five years ago.

> Actual cash has increased by an average of 110% from 2004. This was a greater increase than total assets, up by an average of 94%. Shareholders’ equity has increased by an average of 100% in the five years.

These conclusions come from a cross-section of 103 non-financial services companies drawn from the S&P/TSX 60 index, plus representatives from the S&P/TSX completion and small-cap indices.

Statistics Canada’s financial report on all non-financial businesses as of midyear 2009 shows a pattern similar to that indicated by IE’s survey of listed companies. StatsCan figures show cash rising to 6.6% of assets from 5.8% at yearend 2004. The equity/assets ratio had also improved to 42.1% from 39%.

Over that time span, StatsCan reports have shown a similar pattern of increase: cash is up by 53%, while shareholders’ equity increased by 47%, and total assets for non-financial companies rose by 36%.

The StatsCan numbers for Q2 2009 are preliminary, and will be revised with final figures next year. The report is a mixture of actual, estimated and projected numbers for industrial companies of all sizes, not just those large enough to be traded on the stock market.

The IE survey’s cash analysis includes cash equivalents and short-term investments in the totals, but excludes the restricted cash shown on a few balance sheets. Gold bullion held by mining companies is included as cash, taken at market value.

In all, 68 of the 103 companies had a greater amount of cash at midyear 2009 than they did at yearend 2004.

More companies had greater shareholders’ equity and more assets at midyear 2009 than five years prior, but the average increase was smaller. Of the 103 companies, the total assets of seven companies decreased; one was unchanged. As for shareholders’ equity, 11 companies lost ground over the five-year span.

Managing cash more efficiently has become a general corporate strategy, and it certainly has been exercised by corporate Canada. If a 4% cash/assets ratio was a healthy situation in an expanding economy in 2004, the recent 4.5% ratio is even better in a recessionary year.

Although balance sheets were slightly weaker at midyear 2009 than they were five years earlier, the equity/assets ratio is still high and indicates that corporate Canada’s borrowing needs may not be all that urgent. IE