CFOs are careful with balance sheet cash
The US economic rebound has boosted liquidity and short-term investments for many US companies.
Survey of the Association of Financial Professionals of 327 treasury and corporate finance professionals, 47% reported an increase in their organization’s cash flow and short-term investments. This increase has occurred over the past 12 months ending in March 2021, and is 16 percentage points from the 31% reported last year.
Factors that had a significant or definite impact on the increase were increased operating cash flow (71%), pandemic and contingency planning (72%), decreased capital expenditure (66%), access to financial markets (44%) and government stimulus measures (44%).
Still, a significant number of finance professionals (39%) said cash and short-term investments had plummeted in the past 12 months, largely due to the impact of the pandemic (64%) , a decrease in operating cash flow (45%), a debt repayment or repayment (42%) and an increase in capital expenditure (33%).
The number of capital expenditures was down from 55% in last year’s survey, AFP noted.
“It is evident that the brutal impact of the pandemic on companies’ liquidity has severely restricted their capital spending,” AFP said in its report.
Unsurprisingly, treasurers are still largely focused on preserving balance sheet cash and protecting against future uncertainty, despite strong economic forecasts, additional economic stimulus packages from Congress, and the historically low cost of debt.
About half of the CFOs surveyed said their organizations will maintain their current cash levels from April to September 2021. About 28% plan to increase cash levels during this time and 23% expect cash flow to decline. .
“This indicates that business leaders will continue to be cautious, at least until early fall of this year. If they do not seek to build up their assets quickly, they do not take major measures to deploy their cash and their investments in the short term ”, indicates the AFP report.
This is not necessarily true for large state-owned companies, according to other sources. A new report from Goldman Sachs says S&P 500 companies have approved plans for $ 567 billion in share buybacks since the start of the year. They could actually execute an even larger amount, Goldman analysts estimate: $ 726 billion in buybacks this year, up 35% from $ 537 billion in 2020.
As for where the parked money goes, organizations continue to keep just over half of their short-term investments in bank deposits, relatively stable compared to last year.
“Treasury professionals always rely on their banks for support,” AFP said.
Other popular places to park money were government and treasury money market funds and blue chip money market mutual funds.
For the most part, treasurers do not hold this money for very long. They continue to place most of their short-term investments in very short-term instruments. On average, 45% of all short-term investments were vehicles with a maturity of one day or less, while 18% of all short-term investments were vehicles with maturities between eight and less. 30 days.
“For now, it’s worth being on the short end of the yield curve for operating cash,” AFP said.