Solid Data on Corporate Liquidity

Companies are building cash reserves by increasing operating cash flow, and they're storing cash in extremely short-term instruments.

The AFP’s annual liquidity survey supports the widely held belief that companies are stockpiling their cash.

Almost twice as many survey respondents reported that their organization increased its cash balance over the past year (40 percent) than reduced its cash balance (22 percent). And the trend persisted when respondents were asked what they expect their companies to do in the year ahead: 31 percent said they expect an increase, 19 percent expect a decrease, and 50 percent expect no change in their cash balances over the next year.

About three-quarters of all companies represented in the AFP survey have written policies for cash investment, guiding decisions like which investment vehicles a treasury team can use for short-term investments and what proportion of the company’s cash balance can reside in each vehicle. Fifty-nine percent of companies with annual revenues under $1 billion have such a policy, as do 89 percent of those with revenues over $1 billion. Among companies that have a written policy, 49 percent review and update the policy once a year. Nineteen percent review and update it more frequently, while 16 percent do so every two to four years. The remaining 16 percent do not review their cash investment policy on a regular basis.

Compared with the AFP’s 2012 liquidity survey, this year’s respondents report that their companies are more stringently limiting investments in certain asset classes. For example, 60 percent said their company limits municipal securities to a quarter of its portfolio assets, compared with 46 percent last year, and 48 percent restrict Eurodollar deposits to a quarter of the portfolio, vs. 26 percent last year.

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