US corporate treasurers continue to be more likely to deploy cash compared with previous years, according to a quarterly survey by the Association for Financial Professionals (AFP).
The AFP Corporate Cash Indicators show that companies are in more of a spend mode compared with a year ago, but more grew their cash reserves in the first quarter of 2013 compared with the fourth quarter of 2012.
The survey showed that 28% of businesses plan to reduce cash balances and that 23% expect to increase them, a minus-5 margin that nearly mirrors the previous quarter’s minus-4.
“For the first time, the index has shown negative for two consecutive quarters,” Jim Kaitz, AFP’s president and chief executive, said in a news release. “The change we saw at the end of last year may be the beginning of a trend.”
Companies are more apt to hold onto cash during extended economic downturns, largely for defensive reasons: If companies don’t know how long the storm will last, they’re better off saving than spending. Another reason: Lending opportunities shrink as banks charge higher rates.
AFP said in the news release that corporate treasurers looking to spend indicated they would devote cash balances to debt reduction, capital expenses and acquisitions. Jeremy Siegel, a finance professor at the University of Pennsylvania, said some items companies would devote cash to include advertising and developing new markets.
“Everyone is feeling better,” he said. “Take a look at what the markets are doing, and we see a recovery in housing. We’re four years past the bottom of that serious financial crisis. It took a long time, but I think those fears are wearing off.”
The AFP survey shows that 38% of reporting companies had bigger cash balances at the end of the first quarter than at the end of the fourth quarter of 2012, compared with 28% having smaller reserves.
Year over year, the survey showed that 35% of companies held greater cash balances and 27% held smaller reserves at the end of the current first quarter than at the end of the first quarter of 2012.
Also, the survey showed that 7% of companies were more aggressive with short-term investments in the first quarter of 2013, compared with 3% who were more conservative. That plus-4 margin is up from a margin of zero the previous two quarters.
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—Neil Amato (namato@aicpa.org) is a CGMA Magazine senior editor.