Corporate Finance

CFOs Being Cautious With Balance-Sheet Cash

Many finance execs plan to maintain their higher cash balances until at least September, finds the AFP.
Vincent RyanJune 28, 2021
CFOs Being Cautious With Balance-Sheet Cash

The U.S. economic rebound has boosted many U.S. companies’ cash and short-term investment holdings. The Association for Financial Professionals’ survey of 327 corporate treasury and finance professionals found that 47% reported an increase in their organizations’ cash and short-term investments. That increase is over the 12 months ending March 2021, and it is 16 percentage points than the 31% reported last year.

Factors that had a significant or some impact on the increase were increased operating cash flow (71%), pandemic planning and contingencies (72%), decreased capital expenditures (66%), accessed capital markets (44%), and government stimulus (44%).

Still, a significant chunk of finance professionals (39%) said cash and short-term investment holdings fell in the last 12 months, largely due to the pandemic’s impact (64%), decreased operating cash flow (45%), paid back or retired debt (42%), and increased capital expenditures (33%).

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The capital expenditure number was down from 55% in last year’s survey, the AFP noted. “It is evident the brutal impact of the pandemic on cash holdings at companies severely restricted their capital expenditures,” the AFP said in its report.

Not surprisingly, treasurers are still largely focused on preserving balance sheet cash and safeguarding against any future uncertainty, despite robust economic predictions, plans for further economic stimulus from Congress, and the historically low cost of debt.

About half of the finance executives surveyed said their organizations would maintain their current cash levels from April through September 2021. About 28% plan to add to cash levels during that time, and 23% expect to see cash holdings fall. “This signals that business leaders will continue to be cautious, at least until early fall of this year. While they are not looking to build up their holdings rapidly, they are also not taking any major steps to deploy their cash and short-term investments,” said the AFP report.

That’s not necessarily true for large, publicly held companies, according to other sources. A new Goldman Sachs report says S&P 500 companies have approved plans for $567 billion worth of stock buybacks since the beginning of the year.

They may actually execute an even larger amount, estimate Goldman analysts: $726 billion in buybacks this year, up 35% from $537 billion in 2020.

As to where parked cash is going, organizations continue to maintain slightly more than half of their short-term investments in bank deposits, relatively steady with last year’s number. “Treasury professionals are still leaning on their banks for support,” said the AFP.

Other popular places to invest cash were government and treasury money market funds and prime money market mutual funds. For the most part, treasurers are not locking up this cash for very long. They continue to place most of their short-term investment holdings in instruments with very short maturities.

On average, 45% of all short-term investment holdings were in vehicles with maturities of one day or less, while 18% of all short-term investment holdings were in vehicles with maturities of between eight and 30 days. “For now, it pays to be on the short end of the yield curve for operating cash,” the AFP said.