WORKING CAPITAL OF NONFINANCIAL U.S. CORPORATIONS

September 30, 1975

The net working capital of nonfinancial U.S. corporations increased $10.3 billion during the first nine months of 1975; this compares with a $17.2 billion rise in the corresponding period of 1974. The $2.8 billion increase during the third quarter of 1975 compares with a $5.6 billion gain in the July-September period last year. Net working capital, which represents corporate investment in current assets in excess of current liabilities was approximately $272 billion at the end of September, 1975.

Through the first nine months of 1975 total current assets recorded an increase of approximately $4 billion, while current liabilities declined almost $6 billion. In contrast during the July-September period total current assets rose slightly more than $13 billion and current liabilities increased more than $10 billion.

In the third quarter of 1975, accounts receivable rose nearly $10 billion and other current assets increased slightly less than $2 billion. Partially offsetting these gains was an approximately $2 billion decrease in inventories. Inventory reductions have totaled slightly more than $8 billion during the January-September period.

Also on the asset side, cash balances gained almost $2 billion in the third quarter of 1975, while holdings of U.S. Government securities increased approximately $1.5 billion. The ratio of these two items combined to total current liabilities--a frequently used measure of corporate liquidity--was .18 at the end of September, 1975, unchanged from the previous quarter and compares with .16 a year earlier. Another measure of corporate liquidity, the current ratio (the ratio of total current assets to total current liabilities) was 1.61 at the end of September as compared with 1.62 in the second quarter of 1975 and 1.58 a year earlier.

On the liabilities side of the balance sheet, total current liabilities increased approximately $10 billion in the third quarter of 1975. Accounting for this rise were gains of nearly $5 billion in other current liabilities, $2 billion in Federal income tax liabilities and $3 billion in accounts payable. This latter gain was constrained by a significant effort to reduce short-term bank debt.

Besides the approximately $3 billion increase in corporate working capital in the third quarter of 1975, nonfinancial U.S. corporations invested almost $26 billion for additions to plant and equipment within the United States and nearly $9 billion in other noncurrent assets including residential structures and fixed assets of foreign subsidiaries. To finance these requirements, they generated nearly $28 billion from internal sources--depreciation and retained earnings--or approximately 75 percent of the required funds as compared to 44 percent a year earlier. These corporations raised

1) Year-end data for this series are based on S data through 1971, which cover virtually all corporat States. Statistics of Income data may not be strictl to year because of changes in the tax laws, basis for processing the data for compilation purposes. All in and year-end estimates after 1971, are based on data sources, including data on corporations registered wi

2) The item, cash on hand and in banks, include of deposit.

3) The item, U.S. Government securities, includ issues.

4)

Receivable from and payable to the U.S. Gove clude amounts offset against each other on corporation arising from subcontracting which are not directly du Government. Wherever possible, adjustments have been Government advances offset against inventories on cor

5) The item, other current assets, includes mar (other than Government securities and time certificat well as sundry current assets.

6) The current ratio is total current assets to liabilities.

7) The quick ratio is the summation of cash and securities to total current liabilities.

8) Figures are rounded and will not necessarily

The accompanying table contains the aggregate es assets and current liabilities of nonfinancial U.S. c

STOCK TRANSACTIONS OF SELECTED FINANCIAL INSTITUTIONS
AND FOREIGN INVESTORS, FIRST THREE-QUARTERS OF 1975

During the first three quarters of 1975, private noninsured pension funds, open-end investment companies, life insurance companies and property-liability insurance companies purchased $27.0 billion of common stock and sold $23.7 billion, resulting in net purchases of $3.3 billion. For the same period in 1974, purchases were $21.0 billion; sales were $19.3 billion; and net purchases were $1.7 billion. Their common stock activity rate 1/was 23.8 percent as compared to 18.6 percent a year earlier.

Private Noninsured Pension Funds

Purchases of common stock by private noninsured pension funds rose from $9.1 billion for the first nine months of 1974 to $13.1 billion in 1975, while sales increased from $7.5 billion to $9.0 billion. fore, net purchases climbed from $1.7 billion to $4.1 billion and their common stock activity rate rose from 13.9 percent to 18.5 percent.

Open-End Investment Companies

For the nine-month period ending September 30, mutual funds purchased $8.8 billion of common stock and sold $9.7 billion, yielding net sales of $0.9 billion. Purchases for the same period in 1974 were $7.0 billion; sales were $7.5 billion; and net sales were $0.6 billion. Their common stock activity rate was 38.2 percent, up from 30.0 percent a year earlier.

Life Insurance Companies

During the first three quarters of 1975, purchases of common stock by life insurance companies for their general accounts were $1.4 billion as compared to $1.3 billion the year before; sales were $1.2 billion versus $1.0 billion in 1974. As a result, net purchases for the initial three quarters of the year declined slightly from $0.3 billion to $0.2 billion, while the activity rate rose from 14.1 percent to 16.2 percent.

For their separate accounts, life insurance companies purchased $2.2 billion of common stock and sold $1.3 billion, resulting in net purchases of $0.9 billion. A year earlier, purchases were $1.6 billion; sales were $0.9 billion; and net purchases were $0.7 billion. Their common stock activity rate increased from 23.5 percent to 28.5 percent.

1/ Activity rate is defined as the average of gross purchases and sales divided by the average market value of holdings. Activity rates used throughout this report are expressed as annual rates.