U.S. corporates generated slightly higher cash levels in the third quarter, even as capital spending rose at one of the fastest clips in years.

According to Morgan Stanley strategists, cash balances in the Russell 1000 reached about $2.1 trillion, while the cash-to-enterprise-value (cash/EV) ratio continued to slip to 3.4% as market valuations pushed higher.

Information Technology, Consumer Discretionary, Healthcare, and Communication Services together represent nearly three-quarters of that cash.

Companies continued to produce solid free cash flow (FCF), strategists said. In the latest quarter, they generated “$1.6 trillion of free cash flow, while the FCF yield fell to +2.8%,” reflecting a rising market cap base.

Operating cash flows climbed to $2.7 trillion, up 13.3% year-on-year, while capex surged 15.9% to roughly $1.1 trillion.

Strategists note that firms “have been reinvesting their higher net income into capital expenditures, while maintaining dividend payments and stock repurchase levels.”

Shareholder payouts remain a major destination for corporate cash. Total shareholder return in the Russell 1000 rose to about $1.9 trillion, made up of $770 billion of dividends and $1.1 trillion in net buybacks. Both categories increased from a year earlier.

Energy, Financials, and Real Estate-linked groups generated the highest payout yields, while technology and consumer sectors delivered more modest ones. The report also highlights sizeable differences across sectors in cash generation and balance-sheet strength.

Large-cap companies such as Workday, Datadog, Ross Stores, Honeywell, Spotify, Micron, ADP and Salesforce are singled out as having “robust levels of cash.” Others, including Netflix, DoorDash and FedEx, screen well for strong expected free cash flow growth heading into next year.

Meanwhile, the cash conversion cycle (CCC) extended to 87 days, rising 16 days quarter-on-quarter and six days year-on-year, mainly due to slower collections and less favorable payables timing.

Debt levels also ticked up across almost every sector except technology and health care, which held steady. Utilities posted the largest year-over-year increase in leverage, and a handful of companies with more than $10 billion in market value may face “near-term refinancing needs.”

Overall, the data portrays a corporate sector still generating high cash flows and maintaining elevated shareholder distributions, while simultaneously stepping up reinvestment.

Cash balances remain large in absolute terms, but relative valuations and heavier capex are pushing traditional cash ratios lower.

As the strategists suggest, companies with ample free cash flow and stronger balance sheets may be better positioned “to withstand any deeper corrections in the market.”