CFOs’ plans for cash show mixture of optimism, caution

Companies’ plans for cash reserves – stockpiles that have grown to historic highs in recent years – indicate a mix of optimism and caution, according to a recent survey of CFOs of North American companies.

CFOs from large North American companies who participated in February in Deloitte’s quarterly CFO Signals survey plan to devote 27% of their cash to domestic investment and 24% to liquidity in 2012. Fourteen percent of the cash is earmarked for dividends.

Companies have record levels of cash on their balance sheets, the report says. Moody’s Investor Service reported that US nonfinancial corporate cash holdings were at $1.24 trillion at the end of 2011, matching the amount they were holding in the previous year and up from $1.11 trillion at the conclusion of 2009.

With a relatively small number of respondents (94 for the most recent poll), Deloitte’s survey provides CFOs with information regarding their peers’ thoughts on a variety of topics, but does not purport to be scientific. The report provides extensive information on CFOs’ use of and plans for their companies’ cash.

Sixty-six percent of 1,358 US CPA respondents in the recent AICPA Economic Outlook Survey said their companies had either about the right amount of cash or less than they need. Amongst those who reported having more cash than they need, those who were reluctant to deploy their cash outnumbered those who planned to deploy.

The CFO Signals report shows that bank deposits, money market accounts and government bonds are the most popular locations for companies to hold their cash. About 45% of CFOs report substantial or high use of bank deposits, and almost 45% are making substantial or high use of money market accounts.

Almost 60% of US respondents reported substantial or high use of US government bonds. US CFOs represented 64.5% of the respondents; 22.6% were from Canada, and 12.9% were from Mexico.

About 20% of companies’ cash is held abroad, although US companies’ overseas holdings of 24% more than doubled the 11% of Canadian companies’ holdings overseas.

—Ken Tysiac (ktysiac@aicpa.org) is a CGMA Magazine senior editor.