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The Resource for the Global Finance Profession

Treasurers Hoard More Cash in 3Q13, Less So in 4Q?

  • By AFP Research Department
  • Published: 2013-10-28

Political uncertainty and spotty economic growth eroded business confidence in the third quarter of 2013 and led companies to increase their pace of cash accumulation, according to the October 2013 AFP Corporate Cash Indicators (AFP CCI).

The AFP CCI are calculated each quarter by AFP and underwritten by State Street Global Advisors. The 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.

Quarter to quarter, the indicator increased to +19, its highest reading since January 2012, as companies accumulated cash defensively. A plus reading indicates a greater percentage of organizations increased their cash holdings (or plans to increase them). A minus reading indicates a greater percentage of organizations decreased their cash holdings (or plans to decrease them). Year over year, the indicator jumped 10 points to +21, showing a large expansion in cash holdings over the year-ago period.

Looking ahead, the indicator for expected cash holdings in 4Q13 dropped to +6 from +14 reported in the previous report, meaning that companies expect to slow their pace of cash accumulation in the final three months of 2013 in anticipation of a resolution to the stalemate in Washington.

Meanwhile, the indicator for short-term investment aggressiveness increased by a point to a reading of +2, indicating that companies were marginally more aggressive in the way they managed their cash.

October 2013 AFP Corporate Cash Indicators™
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Change in cash holdings: 3Q13 v. 2Q13 = +19
Change in cash holdings: 3Q13 v. 3Q12 = +21
Expected change in cash holdings during 4Q13 = +6
Aggressiveness of short-term investments = +2

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

“This is a case of lost opportunity,” said Jim Kaitz, AFP’s president and CEO. “While many companies expect to slow their pace of cash accumulation in the fourth quarter, they would have been putting that cash to work much earlier if not for the continued uncertain environment.”

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 12 data sets. See www.afponline.org/CCI for answers to frequently asked questions. The next set is slated to be published January 27, 2014.

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All rights reserved.

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