U.S. corporations held larger cash balances in their treasuries at the end of last year than they did for the previous quarter or the previous year.
The most recent AFP Corporate Cash Indicators report from the Association for Financial Professionals showed that quarter-to-quarter, 37 percent of reporting organizations had greater cash balances at the end of the fourth quarter of 2012 than they had at the end of the third quarter. Meanwhile, 32 percent had cut cash reserves.
Year-over-year, 47 percent held greater balances at the end of the fourth quarter of last year than they had at the end of the fourth quarter of 2011, while 27 percent held smaller cash balances.
“Interestingly, a number of finance pros have told us they have recently tapped their excess cash to fund acquisitions,” said AFP president and CEO Jim Kaitz in a statement. “More often, we hear they are accessing their cash to pay down debt, repurchase shares or issue dividends.”
Looking ahead, companies anticipate shedding cash in the first quarter of 2013. Twenty-eight percent expect to reduce their cash balances, compared to 23 percent that expect to increase cash balances. The forward-looking indicator is negative for only the second time in the history of the survey.
Asked what impact, if any, the recent fiscal cliff agreement would have on their organization's decision to deploy cash to fund growth-oriented investments, 91 percent of the finance professionals who responded to the survey said there would be no significant impact.
Companies reported that their investment selection for cash and short-term investments had become neither more aggressive nor more conservative. In an environment where the yield on short-term investments has become virtually non-existent, unlimited FDIC insurance for commercial bank accounts has expired, and the future regulatory environment for money market mutual funds remains uncertain, some financial professionals commented that they were now focusing exclusively on U.S. Treasury money market funds and overnight deposits. Others told the AFP they were moving unneeded cash to longer-term reserves or moving international cash “further out on the curve.”
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