Corporate Investment is Beginning, Finds AFP Liquidity Survey

A trickle of corporate cash has begun flowing into investment projects such as acquisitions, business launches and other capital expenditures, according to a survey released by the Association for Financial Professionals (AFP). About 30% of corporate finance executives say that in the last 12 months their organisations have begun to use the cash that had been accumulating on the sidelines for the past six years.

The 2011 AFP Liquidity Survey, underwritten by Citi, represents the sixth time AFP has conducted this annual survey of chief financial officers (CFOs), treasurers and other financial executives. The percentage of organisations currently reporting a decline in cash reserves is the largest in the survey’s history.

Although the main reason for a decline in cash was a decrease in operating cash flow stemming from the recession, from which they are still recovering, AFP noted that 30% of reporting executives specifically indicated that that their organisations had begun to put cash to work in growth initiatives. This change in behaviour represents a small but noteworthy departure from AFP’s previous liquidity surveys.

“While the survey shows very conservative behaviour, we believe it provides hope for intermediate term prospects,” said Jim Kaitz, AFP’s president and chief executive officer (CEO). “Some companies are beginning to spend cash to build their operations. Others are seeing cash levels rise because their business picture is improving. As companies find opportunities to deploy this cash in the coming months, we will see the economy gain some momentum.”

For many of the companies that did increase cash reserves, their rationale reflects an improved business climate: About 56% of organisations that increased cash holdings did so because their operating cash flow had improved. This is a contrast to last year’s survey, which found that the organisations that increased cash holdings did so to “maintain operations and get through the recession” or “for working capital improvement”.

“We are heartened by the encouraging signs revealed in the survey, which show that treasurers are seeking opportunities for enterprise-wide liquidity efficiency, while still emphasizing a diversified investment portfolio.” said Elyse Weiner, head of global liquidity and investments with Citi’s Global Transaction Services (GTS). “As a sponsor of this year’s survey and a world leader in liquidity management solutions, Citi has long supported companies as they expand their global footprint. Our latest technological advances will provide companies with important opportunities to manage their global cash more effectively.”

Looking ahead, executives remain cautiously optimistic. About 24% of net investor organisations and about 26% of net borrower organizations say they expect to further reduce cash reserves in the coming year. Of those, 42% expect to increase spending, 23% expect to pay back debt and 16% expect to acquire a business or launch a new operation.

Of respondents who think their cash holdings will expand, the vast majority (82%) believe the expansion will be due to better operating cash flow. Within the US, organisations typically hold cash in bank deposits, money market mutual funds and US Treasury securities. Outside the US, they typically place it in bank deposits.

AFP conducted the survey in May 2011, generating 364 responses. The survey respondents were senior finance and treasury executives from a broad range of companies – typically US-based multinationals with a median of US$2bn in revenues.


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