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Study: U.S. Firms Deployed Some Cash in First Quarter, But Will Resume Accumulating This Quarter

AFP April 2016 Corporate Cash Indicators® reveals this is the second consecutive quarter that organizations’ cash behavior matched their expectations entering the quarter.

Bethesda, Md. -- American companies said they would deploy their cash in the first quarter of 2016 – and they did, according to the AFP Corporate Cash Indicators® (AFP CCI).

During the first quarter of 2016, U.S. businesses began to deploy some of their cash reserves, though not at a significant rate. The quarter-over-quarter index decreased by 17 points to -1, suggesting greater willingness to spend than in the prior quarter. This is the second consecutive quarter that organizations’ cash behavior aligned with their expectations entering the quarter. The year-over-year indicator is +10, signaling organizations were focused on building their cash reserves in the past year.

Published each fiscal quarter by the Association for Financial Professionals, the AFP CCI measures 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.

Finance professionals are poised to increase their cash reserves during the second quarter of 2016. The forward-looking CCI measure, tracking expectations in the change of cash holdings during the current quarter came in at +7, an increase of 8 points from what was reported in January’s CCI report and up 8 points from a year earlier.

The CCI measure for short-term investment aggressiveness indicated a slightly more aggressive investment posture as compared to last quarter, increasing from a reading of -3 to +1 during the first few months of 2016.

Strong job numbers, declining unemployment and a far less severe winter compared to years past instilled some confidence among business leaders in the U.S. in the early months of 2016. However, results suggest they plan to reverse course and resume accumulating cash reserves in the second quarter. The recent terrorist attacks in Europe and a very uncertain domestic political environment in a general election year are likely contributing to the prevailing uncertainty.

“The April CCI shows that corporates are prepared to deploy cash holdings, but only under the most strategic circumstances,” said AFP President and CEO Jim Kaitz. “Unless there is a clear opportunity, organizations continue to be content to hold on to their cash in case of emergency.”

April 2016 AFP Corporate Cash Indicators®
Change in cash holdings: 1Q16 v. 4Q15 = -1
Change in cash holdings: 1Q16 v. 1Q15 = +10
Expected change in cash holdings during 2Q16 = +7
Aggressiveness of short-term investments = +1

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 22 data sets. See for answers to frequently asked questions. The next set is slated to be published July 25, 2016.

Headquartered outside Washington, D.C., the Association for Financial Professionals (AFP) is the professional society that represents finance executives globally. AFP established and administers the Certified Treasury Professional and Certified Corporate FP&A Professional credentials, which set standards of excellence in finance. The quarterly AFP Corporate Cash Indicators serve as a bellwether of economic growth. The AFP Annual Conference is the largest networking event for corporate finance professionals in the world.

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