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The Resource for the Global Finance Profession

2Q14 Corporate Cash Reserves Up, Short-Term Investment Quickens

  • By Staff Writers
  • Published: 2014-07-28

Coinciding with the SEC’s money market mutual fund ruling for corporations, the AFP Corporate Cash Indicators ® (AFP CCI) released Monday revealed that U.S. businesses built cash reserves at a faster pace during the second quarter of 2014 and invested those assets more conservatively. But the burst in cash accumulation is expected to be short lived.

Calculated each quarter by the Association for Financial Professionals (AFP) and underwritten by State Street Global Advisors, the AFP CCI measure changes in corporate cash holdings quarter-to-quarter and year-over-year, as well as the expected change in short-term investment and cash accumulation in the coming quarter. For 2Q2014, the indicator measuring the quarterly change in cash holdings is up eight points from the April reading at +12. The year-over-year indicator surged 22 points to +27, indicating a much faster pace of cash accumulation.

Meanwhile, the indicator for short-term investment aggressiveness dropped from +10 to a reading of +2, indicating that companies had become more conservative in their short-term investments, or that they were becoming more restrictive in selecting among short-term asset classes and credit qualities.

Looking ahead, corporate treasurers anticipate a slower pace of cash accumulation. The forward-looking indicator measuring expectations in the change of cash holdings dropped two points to a reading of +10.

“Uncertainty around money market mutual funds has finally settled and corporate treasurers can move on,” said Jim Kaitz, AFP’s president and CEO. “Businesses are moving their cash to other ultra-safe short-term investment vehicles as they seek opportunities to deploy their investment holdings.”

July 2014 AFP Corporate Cash Indicators®
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Change in cash holdings: 2Q14 v. 1Q13 = +12
Change in cash holdings: 2Q14 v. 2Q13 = +27
Expected change in cash holdings during 3Q14 = +10  
Aggressiveness of short-term investments = +2

The indicators measure recent and anticipated changes in corporate cash balances by calculating increase percentage minus decrease percentage.

Each quarter, AFP asks select members representing a broad cross section of U.S. businesses the same questions: whether their company’s short-term holdings increased or decreased in the past year and past quarter; whether investment selections for those holdings changed; and whether they expect cash holdings to increase or decrease in the coming quarter. AFP member companies have agreed to participate in this ongoing study on a long-term basis.

Participants manage their companies’ cash and short-term investment portfolios and are fully aware of their companies’ liquidity needs and business strategies. Since corporate decisions to grow/shrink the size of cash and short-term investment portfolios reflect their business outlook and direction, changes reported by this broad group of companies are indicators of economic activity.

AFP began collecting quarterly data in January 2011 and has now collected 15 data sets. See www.afponline.org/CCI for answers to frequently asked questions. The next set is slated to be published October 27, 2014.

Copyright © 2014 Association for Financial Professionals, Inc.
All rights reserved.

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