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Cash & Working Capital

Companies Not Using as Much Cash as Anticipated

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May 05, 2017

AFP says that after starting the year bullish, companies got cold feet when it came to paring down cash positions.

BenjaminsCompanies continued building up their cash reserves in the first quarter of 2017, after suggesting that there would be more spending, according to data from the Association of Financial Professionals’ cash survey. Meanwhile finance executives are less optimistic about the economy as the second quarter comes to a close, which could suggest cash will build up even more.

This situation was recently confirmed by S&P 500 data showing profits jumped an estimated 13.9% in the first quarter, growing nearly twice as fast as revenue.

AFP attributes some of the buildup and lack of spend to renewed caution amid “continued gridlock in Washington, military action by the US against Syria, North Korea’s continued threats to use nuclear weapons and postponement of the deadline for corporate tax reform has in all likelihood contributed to a return of a cautionary approach among business leaders.” This after more optimism at the start of the quarter with a new president with bullish ideas for growing the economy.

The growth in cash also continues as a lack of a destination for it drags on. Post-crisis there are still few places for cash to go that offers a decent return. According to premeeting data from the NeuGroup’s Treasury Investment Managers’ Peer Group 2, companies are spreading their cash around in safe spots like FICA accounts, in-house portfolios, commercial paper, tier 2 CP, government-only funds, separately managed accounts, bank deposits and polled FIDC products. Most of the is held short-term, as confirmed by the AFP cash survey results. “26 percent of organizations anticipate expanding cash and short‐term investment balances over the next three months, while 23 percent plan to reduce these balances. The net index reading of +3 is up 10 points from that reported in January and down four points from the April 2016 survey.” 

The AFP also said 41 percent of organizations held larger cash and short‐term investment balances at the end of Q1 2017 than they did at the end of Q4 2016, while 26 percent reduced cash holdings in the past three months. The +15 difference was down one point from the previous quarter’s reading and an increase of 16 points from a year ago.

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