US companies holding onto more cash


By Ken Tysiac

US businesses increased their cash reserves during the second quarter of 2013, and the cash build-up appears likely to continue in the third quarter, according to a recent Association for Financial Professionals (AFP) report.

Almost two in five (38%) US businesses participating in an AFP survey said their cash and short-term investment balances were larger at the end of June than at the end of March. Barely one in four (26%) held less cash at the end of the second quarter than at the end of the first quarter.

Year-over-year numbers show that cash and short-term investment balances increased for 34% and decreased for 23% of respondents between June 2012 and June 2013. A forward-looking indicator in the survey showed that organisations plan to increase cash holdings in the third quarter.

“Since this time last year, cash reserves have been fairly stable,” AFP President and CEO Jim Kaitz said in a news release. “Where we are really seeing a jump is in expectations for the coming quarter. There is an expectation that the Fed will slow its rate of stimulus. Long-term interest rates have jumped. With an economic recovery that is bumpy, finance executives are wary once again.”

Despite this trend, delving into working capital – and effectively managing capital on hand – may be the cheapest and easiest way for companies to finance activities, according to a PwC report. If companies that have taken short-term measures to boost their balance sheets explore ways to manage their capital, as much as €3.7 trillion ($5 trillion) could be released globally, according to PwC.

Better capital management can provide funding in a time when debt funding remains tight and banks are under pressure to protect their assets. “It is likely that funding will continue to be difficult to obtain for the foreseeable future,” PwC Senior Economic Adviser Andrew Sentance said in a news release. “Relatively low growth and economic volatility are also likely to persist through the mid-2010s. This highlights the need for working capital management to remain high on the corporate agenda, so that companies can tap the cheapest source of cash.”

Regions that had more growth in working capital in 2012 had more positive trends with their GDP, the PwC survey found:

  • Africa, Asia and Australia saw a 3% increase in working capital and a 4.8% rise in GDP.
  • The Americas experienced a 2% rise in working capital and a 2.2% GDP increase.
  • Europe, which saw working capital fall 2%, had just a 0.2% rise in GDP.

Ken Tysiac (ktysiac@aicpa.org) is a CGMA Magazine senior editor.

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