Corporate Cash Is Growing, Safety Remains Key

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Most organizations remain conservative when it comes to their investments, according to the 2013 AFP Liquidity Survey.

The cash coffers continue to increase at many companies, and while safety remains a key investment parameter, slightly more firms are focused on liquidity, the 2013 AFP Liquidity Survey found. “There are good signs that companies are building and investing now, and laying the groundwork for their future,” says James Gifas, head of Treasury Solutions at RBS Citizens.

Forty percent of survey respondents say their organizations’ cash balances increased over the year; the largest chunk of these respondents (54 percent) cite higher operating cash flow as the reason. About 17 percent had accessed the debt markets.

Conversely, cash balances dropped at just under one-fourth of respondents. The top reasons: acquiring a new company or launching new operations; boosting capital expenditures; and decreasing cash flow from operations.

Where are corporate treasurers keeping their cash? Half of short-term investments are in bank deposit accounts, about the same as in 2012. However, bank balances have been rising almost non-stop since at least 2006, when they accounted for less than one-quarter of short-term investments.

Even the expiration of unlimited FDIC insurance had little impact on companies’ willingness to keep funds in bank deposits. More than half of respondents – 57 percent – didn’t move any funds from non-interest bearing accounts even once the insurance ended. Another 20 percent moved no more than 10 percent of their balances.

Uncertainty about the future of money market funds likely is helping to drive bank balances higher, the report concludes. In fact, nearly two-thirds of organizations would be less willing to invest in money market funds and/or would reduce their holdings if the funds were required to move to a floating net asset value.

While more corporate treasurers continue to rank safety a higher priority than liquidity when considering investments, the numbers are shifting slightly. This year, two-thirds of survey respondents say safety is their first concern, down from 77 percent in 2012. At the same time, liquidity was mentioned by 29 percent of respondents, up from 21 percent last year.

Most companies – 65 percent – keep the maturity of their short-term investment portfolios to no longer than 30 days. Just six percent go out more than a year.

Most organizations remain conservative when it comes to their investments. Nearly three out of four have a written cash investment policy; that number rises to 85 percent for publicly held firms. About half update it once a year. The investments most likely to be permitted by an investment policy (in addition to bank deposits) are treasury bills at 72 percent of respondents; pure Treasury market funds (59 percent) and commercial paper, which was allowed by 55 percent of respondents.

The survey, which was conducted in May 2013, reflects the input of nearly 900 corporate finance professionals.

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Karen Kroll supplies the Business Finance community with reporting and commentary examining cash management and treasury-related topics.

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