Daily News: July 10, 2012

Finance Pros Say They Will Reduce Cash, Increase Spending

In May 2012, the Association for Financial Professionals (AFP) conducted its seventh annual Liquidity Survey to provide financial professionals with an understanding of how organizations manage their short-term investment portfolios. Through the end of May, the survey generated 391 responses.

According to the survey, 46% of respondents from organizations that expect to decrease their cash holdings in the next 12 months believe their organization will do so primarily because of a decision to increase capital expenditures. In addition, more than a quarter of those anticipating a decline in cash cite “acquisition of a new company” or “launch of new operations” as a main reason for the action.

Among organizations with smaller cash holdings versus a year ago, key reasons for the reduced holdings include increased capital expenditures (30%), acquiring a company or launching new operations (25%), paying back/retired debt (25%), and increased stock repurchases and paying dividends (22%). “Even in today’s environment of uncertainty, a number of companies are spending their cash holdings with an eye toward the future,” said Kevin Roth, Ph.D., AFP’s managing director, research.

Other key findings of the 2012 AFP Liquidity Survey:

  • 41% of organizations held greater cash balances during the first quarter of 2012 than in the same quarter of 2011

  • 30% reduced their cash and short-term investment balances

  • 77% indicate that safety is the most important short-term investment objective

  • 51% of short-term investment balances are maintained in bank deposits, an increase of 9% from 2011 and the highest level reported in seven years of the AFP Liquidity Survey

  • 74% of all cash balances are maintained in banks, money-market mutual funds and Treasury securities

    To read the full AFP Liquidity Survey news release, click here.