Cash & Liquidity ManagementCash ManagementUS firms treasured cash at a slower pace

US firms treasured cash at a slower pace

The results are based on 155 responses from senior treasury and finance professionals this quarter by Corporate Cash Indicators, underwritten by BMO

US companies treasured cash reserves and short-term investment holdings at a much slower pace in the first quarter of 2019 compared to the last quarter of 2018, according to the latest Association for Financial Professionals (AFP) Corporate Cash Indicators (CCI).

The quarterly survey of senior corporate treasury and finance executives conducted by the AFP, indicates that financial professionals were looking to draw down their treasured cash during the first quarter, adopting a wait-and-see approach and waiting for the right economic trigger before spending.

Further findings from the 2019 Q1 CCI include:

  • Change in cash and short-term investment holdings: 1Q19 v. 4Q18 = +3
  • Change in cash and short-term investment holdings over the past year: 1Q19 v 4Q18 = +13
  • Expected change in cash holdings during 2Q 2019 = +10
  • Aggressiveness of short-term investments = -1
  • 36 percent of organizations treasured cash and short-term investment balances at the end of Q1 2019 than the previous quarter, while 33 percent reduced cash holdings in the past three months
  • 38 percent had greater cash and short-term investment balances at the end of Q1 2019 than one year earlier, while 25 percent held smaller cash balances relative to a year ago
  • 35 percent anticipate expanding cash and short-term investment balances over the next three months, while 25 percent plan to reduce balances
  • 9 percent were more conservative with their short-term investments in Q1 2019 and 8 percent were more aggressive.

Economic or monetary trigger

Organizations actual behavior has not aligned with their expectations entering the quarter from two consecutive quarters. Organizations are cautiously optimistic and are taking a wait and see approach, regardless of their willingness to deploy and invest cash.

A decline in the first few month of the year can be attributed to the strengthening dollar; a severe winter weather that hit the U.S. likely kept shoppers home and slowed down consumer spending. This created some uncertainty and the reason why companies treasured cash.

“Treasury and finance professionals are telling us loud and clear that their organizations are ready to unleash their cash,” said AFP President and CEO Jim Kaitz. “However, they need an economic or monetary trigger for them to do so.”

Political uncertainty, interest rate hikes and complex logistics have hit capital performance hard in 2019 – and while an obvious solution forward is to free up working capital, there are a few key obstacles organizations will need to overcome first.

Indicators of economic activity

Each quarter, AFP asks select members representing a broad cross section of U.S. businesses the same questions: whether their company’s short-term holdings increased or decreased in the past year and past quarter; whether investment selections for those holdings changed; and whether they expect cash holdings to increase or decrease in the coming quarter. AFP member companies have agreed to participate in this ongoing study on a long-term basis.

Participants manage their companies’ cash and short-term investment portfolios and are fully aware of their companies’ liquidity needs and business strategies. Since corporate decisions to grow/shrink the size of cash and short-term investment portfolios reflect their business outlook and direction, changes reported by this broad group of companies are indicators of economic activity.

AFP began collecting quarterly data in January 2011 and has now collected 34 data sets.

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