A Treasury Strategies survey suggests that more corporate cash could be put to work in the next six months.
The narrative of burgeoning corporate cash hoards is as old as the financial crisis. That is, companies have lots of cash – and they’re keeping it in the company until they feel like spending. But a new survey from consultancy Treasury Strategies indicates corporate cash levels may be beginning to decrease. The survey results are certainly backed up by the flurry of M&A activity (particularly in tech – see related story), recent dividend announcements (witness Cisco’s saying it will distribute its first) and stock buybacks (Microsoft, Tower Group, MasterCard, etc.) – all of which is expected to continue.
Over the next six months, TS said, several signs point to business becoming more optimistic and reducing their cash levels. One of those signs is that the gap between those firms increasing cash levels and those decreasing them has fallen from 16 percent to 7 percent. This suggests “cash levels may be close to peaking,” TS said. And the companies expecting their cash levels to decrease 47 percent said they would put the money toward capital expenditures, while 34 percent expect an increase in “acquisition activity.”
And how did cash levels get so high in the first place? According to TS, it is the result of “improvements in their day-to-day” business, including a reduction of inventories. But more significantly, the survey also revealed treasury being more conservative in their portfolio management, companies having implemented new cash management technology in the last several years and more reliance on cash forecasting. Recent intelligence from NeuGroup meetings over the past year confirms these notions; we would add to this list an increased priority on risk management and for the investment portfolio, to never abandon the fundamentals in favor of a popular trend or hot new product or strategy.
So have companies been hoarding cash and “stunting” the recovery as some have claimed? TS said no, it’s mainly just companies being responsible and keeping themselves in “good operating condition” through the crisis.