AFP Liquidity Survey Finds US Corporates Beefing Up Cash Balances

More than two in five corporations are holding greater cash balances than they were a year ago, according to the Association for Financial Professionals’ (AFP) seventh annual Liquidity Survey.

This year’s survey, conducted in May and underwritten by RBS and RBS Citizens, generated 391 responses. Respondents were senior finance and treasury executives from a broad range of companies; typically US-based multinationals with median revenue of US$2bn.The results provide financial professionals with an understanding of how organisations manage their short-term investment portfolios.

Among the key findings of the 2012 AFP Liquidity Survey are the following: 

  • Forty-one percent of organisations held greater cash balances during Q112 than in Q111.
  • More than a quarter (27%) reduced their cash and short-term investment balances.
  • Seventy-seven percent agree that safety is the most important short-term investment objective.
  • Over half (51%) of short-term investment balances are maintained in bank deposits, an increase of 9% from 2011 and the highest level reported in the seven years of the AFP Liquidity Survey.
  • Seventy-four percent of all cash balances are maintained in one of three traditional investment vehicles: banks, money-market mutual funds (MMFs) and US Treasury securities.
  • In terms of possible US Securities and Exchange Commission (SEC) rule changes involving MMFs:
    o Up to 77% of organisations would be less willing to invest in MMFs and/or would reduce or eliminate their holdings in response to allowing the net asset value (NAV) to float.
    o Eight out of 10 would be less willing to invest in MMFs and/or would reduce or eliminate their holdings if they were unable to fully liquidate MMF holdings immediately due to holdback provisions.
    o Two-thirds would be less willing to invest in MMFs and/or would reduce or eliminate their holdings should fund companies be required to raise sufficient capital through fees.

“Cash balances continue to grow, while short-term investment selections remain limited in a low yield environment, causing many treasurers to increase their bank holdings to focus on safety,” said Tom Hunt, AFP’s director of treasury services. “This resulted in bank deposits being the number one short-term investment allocation again, and is at a historically high level for the seven years the survey has been available.”

The survey also found that nearly one in three organisations that responded expect to grow their cash balances over the next 12 months, while 22% expect them to contract. About half anticipate no change to the size of their cash and short-term investment holdings over the next year.

Among organisations with smaller cash holdings than a year ago, key reasons cited included increased capital expenditure (30%), paying back/retired debt (25%) and increased stock repurchases and paying dividends. “Even in today’s environment of uncertainty, a number of companies are spending their cash holdings with an eye toward the future,” said Kevin Roth, AFP’s managing director of research.

Of the respondents in organisations that expect to decrease their cash holdings in the next 12 months, 46% believe that it will primarily be due to a decision to increase capital expenditures. In addition, more than a quarter of those anticipating a decline in cash cite “acquisition of a new company” or “launch of new operations” as a main reason for the action. 28% of respondents expect their organisations will have smaller cash levels from a decrease in operating cash flows.

•     The full results of the 2012 AFP Liquidity Survey are released on the AFP website.


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