Nearly three-quarters (72%) of corporate treasurers say that their companies have plans to use the cash that they are holding on their balance sheets.
Furthermore, nearly a fifth (18%) reveal their company is planning to run down cash “aggressively” by returning money to shareholders and not replacing debt.
These are the key findings of a survey entitled Corporate cash and liquid investments, which was conducted by the ACT in July and August 2014, in which treasurers were asked about their companies’ plans for holding cash.
According to the survey, the main reasons that companies are likely to hold less cash is the low-interest rate environment, the fact that they have greater access to committed borrowing facilities and their ongoing concerns over where to invest the cash that they are holding.
Prudence in light of the economic uncertainty is the main reason why companies have built up their cash over the past few years. And caution still prevails, since 43% of respondents said that they expected their companies to hold more cash than in the past due to their continuing concerns. These relate to political tensions and economic worries, as well as regulation or other considerations that may further reduce banks’ lending capacities.
According to the Office for National Statistics, UK private non-financial companies have held around £0.5 trillion in cash in recent quarters, while US companies hold around $2 trillion and eurozone companies around €2 trillion, according to consultancy Treasury Strategies. In all three regions, cash holdings have more than doubled since 2000.
Commenting on the survey findings, Colin Tyler, ACT chief executive said: “Sensibly, companies everywhere increased cash holdings during the financial crisis and its aftermath, and the early stages of the crisis in the eurozone. But it is a welcome sign of recovery of confidence that almost three quarters of treasurers expect to see those balances running down. Given the consequences of the crisis for the banks and the new financial services legislation, it is not surprising that more than 40% of firms expect, prudently, to end up holding more cash than they used to.”
But he added: “The ACT remains concerned that managing liquidity prudently and cost-effectively is becoming more challenging as structural changes to banks and money market funds take hold. Treasurers and their boards should remain vigilant.”
To download a copy of the report, visit: http://tinyurl.com/pld27lh
Sally Percy is editor of The Treasurer