Cash Flow

Private-Company CFOs Have Cash But Won’t Use It

Finance chiefs and other business executives expect their own firms to grow but are wary about the U.S. economy, says a new survey.
Kathy HoffelderJune 7, 2012

Private-company CFOs surveyed by the American Institute of Certified Public Accountants said they have enough cash or have even increased their cash this year, but they remain reluctant to deploy it.

Forty-three percent of the 1,250 senior executives in an AICPA Business and Industry Outlook Survey released today have “about the right amount” of cash currently, while 36% said cash assets have increased from the first quarter to the second quarter of 2012. Thirty-six percent also said they specifically had more noncyclical cash and liquid assets, up from 31% in last year’s second quarter. Almost half of those surveyed were CFOs who were also CPAs (the next-most-prevalent title was controller, at 22%), and 69% represented privately owned firms.

But 24% of the total respondent base said they were hesitant to deploy their excess cash, an increase from 20% who felt that way last quarter. Only 12% said they would actually use it.

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The reluctance to spend cash stems from an overall negative take on the economy. The AICPA’s CPA Outlook Index dropped two points, to 67 from 69, from this year’s first quarter to the second. Similarly, expectations for revenue, profit, and employment growth slid this quarter, though they were essentially unchanged from last year.

But not all is doom and gloom, according to Jim Morrison, CFO of plastics compounding firm Teknor Apex and chair of the AICPA’s Business Industry Executive Committee. He does not consider the two-point drop that dire, considering the index has dropped 9 to 10 points in some years.

“We might have been in a holding pattern for a while, but we are going to resume growth,” Morrison says. “It may not happen right away. There’s still optimism that over the next year, we will be on a growth pattern rather than a downward spiral.”

Morrison is also optimistic about the growth prospects for his firm, which provides plastic compounds to manufacturers in the automotive and retail markets, but he is a bit more cautious regarding the economy. “Our own organization is able to grow in this environment . . . but we are unsure about how the overall economy is going to go.”

The AICPA’s findings back up that sentiment. More than 60% of senior-level CPAs in the survey said they expect their own companies to expand in the next 12 months, a result that’s unchanged from the first quarter.

In the Midwest, the most optimistic region, 59% of the respondents looked more favorably on the economy than they did in the first quarter, which compares with 54% of respondents from the West, 52% from the Northeast, and 51% from the South. The manufacturing and automobile sectors have driven most of that growth in the Midwest, Morrison says.

Those companies that are the most poised for growth, though, tend to be smaller in size. Among companies with revenues between $100 million and $1 billion, 66% said they expected to expand. That compares with 62% of respondents with revenues of more than $1 billion, down from 65% last quarter. The drop in the larger firms’ expectations marks the first time since 2010 that the largest companies were not the most likely group to have growth on their mind.

Respondents also showed a slight improvement in their ability to obtain the necessary financing to expand. While more than half viewed credit availability to be about the same, only 10% saw it as a barrier to a stronger liquidity position, down from 13% last quarter.

“The banks are just getting their act together in terms of where they feel comfortable lending. Their sweet spots are probably in that midlevel company size,” says Morrison. “It’s not surprising that the liquidity side is improving a little bit every quarter.”