The Association for Financial Professionals’ annual Liquidity Survey tracks corporate finance trends and takes an in-depth look at cash holdings, cash management and short-term investment information.
Among other cash management questions, the survey asks whether cash on the balance sheet has increased or decreased over the past year and why. And the answers come from the Treasury officials who are watching most closely: Treasurers, Treasury directors, financial analysts, and other Treasury officials.
In the latest edition of the liquidity survey, released in mid-June, AFP found that more than a third of the 284 responding organizations (37%) increased their cash holdings in the 12 months to March 2022 and 17% increased their cash holdings. The newspaper reported falling cash registers. , The percentage added to their cash buffers wasn’t as high as last year’s record, down just 10 percentage points.
Treasury officials said they would continue to view cash as a valuable asset in the second and third quarters.
More than half of respondents (56%) estimated that their organizations’ current cash and short-term investment balances would remain the same through the end of the third quarter (September 2022), but a quarter of Treasury officials (27%) expected cash and that the short-term investment portfolio will increase over time.
Which factor had the greatest impact on large cash holdings? According to AFP, “increased operating cash flow” had a significant or moderate impact on increasing organizations’ cash holdings for 82% of respondents.
Other contributing factors include pandemic planning and contingencies (cited by 60% of respondents), outstanding credit/available credit markets (41%) and government stimulus (40%). (See diagram above.)
These responses were similar to those from the 2021 liquidity survey, except that the “investment reduction” for that year was well below the list (23% quoted), which was much lower than the 2021 (77% quoted), largely due to the impact of the pandemic . Reason). And 42% of Treasury officials this year said geopolitical risks had “some” impact on large cash reserves.
The “unstable and uncertain” economic environment has forced companies to “cut back spending and focus internally on costs,” AFP said. As a result, efficiency projects and increased operating cash flow have benefited significantly. “Balance sheet accumulation is likely to continue, especially as there is no clear timeframe for when the situation will stabilize,” AFP said.
It’s understandable that most CFOs didn’t cut capital spending in the 12 months to March 2022. The economy still looked strong, consumer sentiment was nearly 30 points higher than now, job opportunities are growing fast and the Fed has recently engaged aggressively in monetary tightening.
Things have changed a lot since then. The problem with building cash reserves now is that debt becomes more expensive (when a company has access to markets) and a slowing economy can wipe out any inflation-adjusted gains in operating cash flow. The CFO Survey, conducted last week by Duke University and the Richmond Federal Reserve Bank, found that CFOs forecast no average revenue growth in 2022 when adjusted for inflation. What will increase are the input costs, which according to 295 survey participants will increase by 10% this year.
The start of the second quarter earnings season should help answer some questions about where both the US economy and corporate liquidity cushions are headed. The only certainty is that trying to add cash buffers in the third quarter won’t be easy — but then again, nothing in an economic climate like this.