Organisations mainly cautious when it comes to corporate cash

While more than one-third of companies continued to build cash reserves, those that disbursed cash did so more often for capital expenditures.

The latest annual liquidity survey by the Association for Financial Professionals (AFP) shows that 43% of companies that disbursed cash did so for capital expenses. That’s up from 32% in the survey from 2013, when about the same percentage of companies said their cash balances decreased.

The primary reason for growth in short-term holdings in the past year is improved operating cash flow. That’s also the top reason listed for companies that expect to increase cash over the next 12 months, according to the survey, which used the responses of 740 senior finance and treasury executives, mainly from large, US-based multinational companies.

Thirty-six per cent of companies grew cash reserves, 41% said they had no significant change, and 23% said cash reserves declined. Last year’s survey showed that 40% grew cash reserves, while 22% said their cash reserves shrank.

Expectations of increased short-term holdings in the next year are for the following reasons:

  • Increasing operating cash flow, 77%
  • Shortening the capital cash conversion cycle, 17%
  • Decreasing capital expenditures, 16%
  • Acquiring a company or subsidiary/launching new operations, 13%

The drivers for companies expecting cash to decline in the coming 12 months are:

  • Increasing capital expenditures, 43%
  • Paying back/retiring debt, 25%
  • Acquiring new company or subsidiary/launching new operations, 24%
  • Decreasing operating cash flow, 22%

“The pace of economic recovery will determine cash decisions,” Jim Kaitz, AFP’s CEO, said in a news release. “Many companies will continue to pile up cash until they see business prospects significantly improve, but even today, we are seeing many forward-looking companies using their cash to invest for the future.”

Other than increased capital expenditures (43%), those that saw cash reserves decline in the past year pointed to decreased operating cash flows (36%), retiring debt (28%), acquisition or launch of new operation (20%), and increased stock repurchases or dividends (20%).

Overseas holdings

Forty-five per cent said their organisation’s percentage of cash and short-term investments outside the US grew in the past year, compared with 37% whose percentage of non-US cash and short-term investments grew from 2012 to 2013.

Most companies, according to the most recent survey, chose to leave non-US balances overseas because of unfavourable tax treatment at home, operational needs, or business opportunities in a particular region.

Half of holdings in banks

Companies continue to be cautious with their short-term reserves, as 52% of corporate cash remains in banks, the most ever shown in the AFP survey, which has been conducted since 2006. The amount of cash in banks was 50% a year ago, 37% in 2009, and 23% in 2006.

The survey says that reasons for the growing amount of cash in banks include uncertainty about proposed reform for money market funds and a lack of strong investment alternatives.

Related CGMA Magazine content:

Corporate Treasurers’ Strategic Role Growing”: Corporate treasurers are taking on increasingly strategic roles as organisations manage high cash reserves in the aftermath of the financial crisis, according to a recent report.

US Finance Professionals Are Upbeat, but They Have Staffing Concerns”: Finance professionals continue to express optimism about the US economy and their own businesses, according to the second-quarter economic outlook survey by the American Institute of CPAs.

Neil Amato ( is a CGMA Magazine senior editor.