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Study: U.S. Firms May Be Willing to Deploy Cash

  • By Staff Writers
  • Published: 1/30/2018

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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.

In the latest CCI, a quarterly survey of corporate treasury and finance executives conducted by AFP, 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 months 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 1Q18 CCI:

  • 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 AFP. “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.

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. The next set is slated to be published April 30, 2018.

Advanced Cash Flow Forecasting: Statistical Techniques
On March 20 & 22, explore various practical examples to show how different statistical methods can be used to forecast components of the cash budget. The advantages and disadvantages of each technique are discussed, and interpretation of the results is emphasized.
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