News: General News

U.S. Firms Accumulated Cash in 1Q19 At A Lower Rate Than Previous Quarter

Thursday, May 16, 2019  
Share |

U.S. companies built their cash reserves and short-term investment holdings at a much slower pace in the first quarter of the year than in the last quarter of 2018, according to the AFP Corporate Cash Indicators, a quarterly survey of senior corporate treasury and finance executives conducted by the Association for Financial Professionals.

The latest CCI’s quarter-over-quarter index reading of the latest CCI decreased 10 points to +3, signaling that organizations were accumulating cash reserves at a slower pace in the first quarter. The year-over year indicator increased by just one point from +12 to +13, indicating that cash balances were higher than a year ago. 

Financial professionals signaled that they were looking to draw down their cash reserves during the first quarter, as the forward-looking indicator reported in the January 2019 CCI fell 12 points to a level of -5. However, their actions indicate they continued to build cash holdings. Their plans for the current quarter are similar. The forward-looking indicator in the latest CCI increased 15 points to a reading of +10, suggesting they will accumulate their cash holdings at a rapid pace. 

“The slower build in cash reserves in the first quarter can be attributed to normal year-end seasonal patterns, because this is when a significant amount of liquidity is required to cover things like tax payments and shareholder distributions,” said Kevin Kane, head of commercial treasury and payment solutions at BMO. “Additionally, companies are reinvesting in their business—to expand capacity or improve efficiencies—and we’re just starting to see them spend some of that liquidity and act on those strategies, which is very encouraging.”

Additional results:

  • 36 percent of organizations held larger cash and short-term investment balances at the end of Q1 2019 than the previous quarter, while 33 percent reduced cash holdings in the past three months.
  • 38 percent had greater cash and short-term investment balances at the end of Q1 2019 than one year earlier, while 25 percent held smaller cash balances relative to a year ago.
  • 35 percent anticipate expanding cash and short-term investment balances over the next three months, while 25 percent plan to reduce balances.
  • 9 percent were more conservative with their short-term investments in Q1 2019 and 8 percent were more aggressive.