Corporate bank accounts continue along the upward path they started in late 2010. The most recent AFP Corporate Cash Indicators, a quarterly look at recent and anticipated changes in corporate balances, showed quarter-to-quarter growth at 40 percent of reporting organizations between year-end 2011 and the first quarter of 2012. In contrast, 27 percent of companies indicated that they lowered cash balances during the quarter.
While the percentage of companies adding to cash balances clearly outnumbered those that were shedding cash, the difference wasn't as dramatic as it was just three months earlier. In the January 2012 survey, the difference between the percentage of companies growing cash balances versus those using cash was +24.
Still, the growth in companies' cash coffers shows no signs of letting up. Nearly one-third of companies expect to add to their cash and short-term investment balances during the second quarter of 2012. That compares with about one-fourth that anticipate reducing their balances, the AFP survey found.
At the same time, the percentage of corporate cash managers moving to more aggressive investment selections slightly outnumbered those that are moving to more conservative investments. A net three percent of companies are choosing more aggressive investments.
The AFP's findings mirror those from the most recent data from the Federal Reserve. As of year-end 2011, total financial assets at nonfinancial corporate businesses hit $15.2 trillion. This was the sixth quarter in a row to show an increase in this number, according to the Fed's Flow of Funds Guide.
What's led to the mountains of cash on companies' balances sheets? In a March release, consulting firm Treasury Strategies attributed the rising levels to the Fed's monetary policies. "The explosive growth in corporate cash can be attributed to monetary policies including Quantitative Easing, which pumped nearly $900 billion into the market, and Operation Twist, which lowered the cost of long-term borrowing," states Mike Gallanis, a partner with Treasury Strategies. Gallanis also noted that fewer companies are experiencing drops in cash due to negative cash flow from operations.
