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Split Decisions

Companies fall into two camps when it comes to deploying their cash.
Kate O'Sullivan, CFO Magazine
February 1, 2011

U.S. finance chiefs are sitting on nearly $2 trillion in cash, bringing the ratio of corporate cash to assets to its highest level since 1959. Half of all CFOs responding to the latest Duke University/CFO Magazine Global Business Outlook Survey (see "Back in Business") say they plan to continue to hold on to their cash in 2011, while the other half say they are ready to put some dollars to work.

Of those who will guard their cash, nearly half (again) say they have no excess cash to spend and another 37% say they are retaining cash as a liquidity buffer. Almost a third are hanging on to cash due to ongoing economic uncertainty, while more than 20% say they don't see any attractive investment opportunities for which they would deploy cash.

"When CFOs are uncertain, they hold on to their cash," says John Graham, finance professor at Duke's Fuqua School of Business and director of the survey. "There are still a fair number of CFOs who are worried about their liquidity situation and, having just lived through a really tight credit situation, they are being prudent and holding cash for precautionary reasons."

The 50/50 split between spenders and nonspenders may shift as the year progresses, of course. Scott Goble, finance chief at Alliance Flooring, a Tennessee-based private company, says his organization is on the bubble; although he has no formal plans in place to spend cash this year, signs of an uptick could push him into the spenders' camp. "I'm seeing a lot of managers looking to spend money," he says, acknowledging that a prolonged period of belt-tightening has created pent-up demand.

 The 10 companies with the highest cash balances as of Q3 2010

Although Goble has not budgeted for any big projects, he says, "I'm expecting my forecast will come in far below what actually happens, because people are getting antsy out there."




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