"Companies generally have done a good job of improving their cost structure and building up their cash balances over the last couple of years," Alsdorf observes. "Now many are looking at how they can do a better job of comparing the apples and oranges of the uses of capital. More and more are grappling with comparisons of M&A versus capital budgeting, both to grow the company, and then looking at how that compares with the right side of the balance sheet. They're asking, 'Should we also be using our cash to increase dividends, or maybe even look at topping up our pension obligations more quickly? Or is now a good time to refinance our debt?'"

Alsdorf adds that unlike acquisitions or dividends, decisions about capital investments usually involve a drawn-out process. When Deloitte has graphed the movement of these alternative uses of cash at a macro level, M&A activity and cash distributions track very closely with stock prices. "But what you also notice," Alsdorf says, "is that capital budgeting tends to have a 6- to 12-month time lag behind the stock market. That makes a lot of sense to us because some of these decisions—say, dividends and stock repurchase—are treasury decisions where you can get a handful of good, sharp analysts in a room and figure out what you're going to do. Capital budgeting, on the other hand, is an enterprise-wide negotiation, where you have to organize the hundreds of managers, business units, and projects in the company. That is a much harder thing to speed up or slow down."

Companies' biggest challenges within the capital budgeting process stem from difficulties around optimally distributing resources among different projects within the company. More than a quarter of respondents to the Deloitte study cited "capital constraints" as the biggest challenge to deploying capital internally.

"It's a demand and supply balance within most organizations," Alsdorf says. "Capital deployment is most effective when the company has a good governance structure, when it frames allocation decisions before doing a lot of analysis so decision-makers don't get too biased, and when it builds a framework for comparing the different types of projects it's managing. Even when a company has large cash balances, it's generally not going to want to spend more than the industry norm—2 percent, 5 percent, 6 percent of revenue—on capital budgeting. So the business units end up jockeying to win funding for their projects."

The Deloitte poll identified two other major challenges in matching supply with internal demand for capital: a lack of realistic growth and operational targets and unreliable business cases. (See Figure 3.)

Finally, Deloitte asked webcast participants whether they expect mergers and acquisitions at their company to increase in the second half of this year. Although 40 percent said that they do expect M&A to pick up, the majority answered either "no" or "don't know." (See Figure 4.)

"It's a horse race between these three answers," Alsdorf says. "When we ask people what factors are influencing their decision-making on spending capital: Is it the European crisis? The housing crisis? All the budget issues in Washington? Certainly the Washington issues are becoming more dominant, but the overarching issue is economic growth, where executives seem to see increased uncertainty. I think you put all those factors together, and you can see why 60 percent of respondents do not see M&A increasing."