Cash Holdings May Decline This Quarter

The first quarter of 2013 may very well be the one that sees more and more companies opening their pockets for new endeavors, this according to a recently released study from the Association for Financial Professionals.  For the second time in two years, the corporate cash indicator shows more and more executives, as much as 28% anticipate the cutting of their cash hoards than the 23% that are planning to add to it. This is the first time since January 2011 that finance professionals are projecting lower cash reserves. If this forecast is accurate, it may mean that companies are becoming increasingly less concerned about parting with their cash on hand.

Of course this forecast remains just that, a forecast. Quarter by quarter and on a yearly basis, cash reserves are still climbing, with 47% of businesses saying that they had larger cash reserves by year end 2012 (27% with smaller balances) than 2011. From the third quarter of 2012 to the fourth, 37% of respondents increased their balance cash sheet, compared with the 32% that depleted their reserves.

What is more important for the US economy is what these companies are actually doing with the money. While some are spending on acquisitions, more and more are using it to pay down debt, buy back shares, and issuing dividends. This is according to AFP President and CEO Jim Kaitz. This does suggest that companies are not reinvesting in their businesses, although these activities are still preferable to keeping money locked away in low return cash investment vehicles.

Many finance professionals told the AFP that they are being neither more aggressive or more conservative with investment selection in the current quarter, which is quite a change from last October, where the difference between the net percentage becoming more aggressive and those becoming more passive was more than 5%.

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More businesses are feeling positive about the economy and as such are shedding some long held cash reserves.

Some business finance professionals have privately stated that they are now focusing exclusively on the US Treasury money market funds and overnight deposits. This is again according to information provided by the fairly conservative AFP. Others may be looking for a more substantive yield than those investments are able to provide. This means moving cash to longer term reserves or moving international cash further out on the curve.

If there is some additional good news, it appears that the large companies have little or no impediment when it comes to adding to their liquidity positions through the debt market. High yield bond issues reached $307 billion in 2012, up more than 39% from 2011. Leveraged loan issuance also increased on the order of 17%, to $664 billion.

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