Strong Cash Flow and Economic Uncertainty Drive Increase in Corporate Cash

The Federal Reserve has reported corporate cash balances climbed to US$1.91 trillion – a 36% increase since the first quarter of 2009, representing US$510bn. This significant increase indicates that businesses continue to generate cash from operations, while corporate treasurers remain concerned about the future economic outlook, according to Treasury Strategies.

“From our work with clients, as well as survey data collected this week, we see that corporations continued to have strong cash flow from operations over the last quarter. Given that total corporate cash continues to grow, these findings tell us that income growth is outpacing expenditures,” said Cathy Gregg, partner of Treasury Strategies.

Beginning in the first quarter of 2009, companies began to accumulate substantial amounts of cash, which triggered accusations of hoarding. “Today’s report demonstrates that corporations are making purposeful decisions to spend wisely as the business environment continues to fluctuate,” said Anthony Carfang, partner of Treasury Strategies.

Over the next six months, companies plan to deploy cash in ways that maximise their return and improve infrastructure. Those activities include capital expenditures, mergers and acquisitions, and equity repurchases. Treasury Strategies’ clients indicate they expect continued strong cash flow from operations, and they are highly interested in strategically redeploying cash, given the continued economic uncertainty.

“In the end, it looks like corporations have done a tremendous job of responsibly managing their operations by holding onto cash through challenging economic events. As we predicted the last three quarters, we will continue to see that responsible behaviour through purposeful spending aimed at strengthening stakeholder relations and business infrastructures,” said Carfang.


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