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Study: U.S. Firms May Be Willing to Deploy Cash, Fueled by Economy and Tax Reform

AFP January 2018 Corporate Cash Indicators® finds companies continued to accumulate cash but at a lesser pace than before.

January 29, 2018 -- Bethesda, Md. – U.S. corporates may finally be ready to deploy cash, according to the latest AFP Corporate Cash Indicators®.

During the last quarter of 2017, U.S. businesses continued to accumulate cash and short-term investment holdings but at a lesser pace than the previous quarter—a sign that treasurers may be readying to deploy cash on capital expenditures, wage increases, dividends and buybacks and mergers and acquisitions. A strong domestic and global economy, and the most significant change to the United States tax code in more than 30 years, are the likeliest explanations.

AFP began collecting quarterly data in January 2011 and has now collected 28 data sets. See www.afponline.org/CCI for answers to frequently asked questions. Also, any press queries, please contact Melissa Rawak at mrawak@afponline.org. The next set is slated to be published April 30, 2018.

In the latest CCI, a quarterly survey of corporate treasury and finance executives conducted by the Association for Financial Professionals, the quarter-over-quarter index decreased 10 points to +15, and the year-over-year indicator increased by three points to +23. These readings suggest treasury and finance professionals are showing some signs of optimism.

This group expects some deployment of cash, though minimal, during the first three month of 2018; the forward looking indicator measuring expectations for changes in cash holdings in the current quarter fell 14 points from a reading of +13 to -1. Meanwhile, the indicator for short-term investment aggressiveness continued to move upward, gaining one point in the last quarter, moving from +5 to +6, signaling an increasingly aggressive posture with cash and short-term investments.

More results from the 1Q18CCI:

  • 37 percent held larger cash and short-term investment balances at the end of Q4 2017 than they did at the end of Q3 2017, while 22 percent reduced cash holdings in the past three months.
  • 42 percent had greater cash and short-term investment balances at the end of Q4 2017 than they had one year earlier, while 19 percent held smaller cash balances relative to a year ago.
  • 24 percent anticipate expanding cash and short-term investment balances over the next three months, while 25 percent plan to reduce these balances.

The results of the January 2018 CCI are based on 144 responses from senior treasury and finance professionals.

“Treasury and finance leaders are still analyzing the new tax bill and are not ready to commit to aggressive spending, but many are weighing plans to deploy cash,” said Jim Kaitz, president and CEO of the Association for Financial Professionals. “Given the new era of corporate taxation, not to mention a healthy economy and increasing wage pressure due to a shallow labor pool, it would come as no surprise.”

January 2018 AFP Corporate Cash Indicators®

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Change in cash and short-term investment holdings (over past quarter): 4Q17 v. 3Q17  = +15

Change in short-term  holdings in the past year:   4Q17 v. 3Q17= +23       

Expected change in cash holdings during 1Q18 = -1

Aggressiveness of short-term investments = +6

 

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.

About AFP®

Headquartered outside Washington, D.C., the Association for Financial Professionals (AFP) is the professional society committed to advancing the success of its members and their organizations. AFP established and administers the Certified Treasury Professional and Certified Corporate FP&A Professional credentials, which set standards of excellence in finance. Each year, AFP hosts the largest networking conference worldwide for over 6,500 corporate finance professionals.

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