Corporate Treasurers See Better Operating Cash Flow Building Reserves

AFP Liquidity Survey marks three-year trend of rising capital expenditures

News provided by

Association for Financial Professionals

Jul 14, 2014, 06:00 ET

WASHINGTON, July 14, 2014 /PRNewswire/ -- Corporate treasurers and CFOs continue build their organizations' cash reserves in response to improved operating cash flows, according to data released today by the Association for Financial Professionals (AFP).

According to the 2014 AFP Liquidity Survey, underwritten by RBS Citizens, 36 percent of companies reported rising cash reserves in the last year and among those that increased cash holdings, a full 73 percent indicated that bigger reserves were the result of better operating cash flows.

Fewer than a quarter reduced reserves over the period. The main reason for any cash shrinkage was an increase in capital expenditure, which was reported by 43 percent of those that reduced cash, up from 32 percent in last year's survey and 30 percent the prior year. Other reasons for trimming cash were to retire debt (28 percent), fund acquisitions or launch new businesses (20 percent), and/or repurchase stock or pay out dividends (20 percent).

"The survey takes the pulse of financial managers and shows the challenges and opportunities they face in the current environment," said Matt Richardson, Senior Vice President and Head of Product Solutions at RBS Citizens and Citizens Bank. "There are definitely signs, such as higher operating cash flow, that could be indicating change and rising optimism in the marketplace."

"The pace of economic recovery will determine cash decisions" said Jim Kaitz, AFP's president and CEO. "Many companies will continue to pile up cash until they see business prospects significantly improve, but even today, we are seeing many forward looking companies using their cash to invest for the future."

Meanwhile, just under half of organizations with operations outside of the U.S. expanded their non-U.S. reserves. Most companies opted to leave their non-U.S. balances overseas either for reasons of unfavorable tax treatment at home, operational necessity or business opportunities in a particular region.

Companies are sticking to ultra-conservative investment strategies with their short-term holdings, with 75 percent of all short-term investments maintained within three vehicles: bank deposits, money market funds, or U.S. Treasury securities. That's because safety is the prime objective for corporate cash, with more than two thirds of companies saying they seek safety first, compared to 28 percent that seek liquidity.

A full 52 percent of corporate cash holdings are maintained in bank deposits, the largest percentage reported since AFP began its Liquidity Survey series in 2006. Bank deposits are attractive because companies are uncertain about future changes in money market fund regulation, many banks allow corporate customers to defray service fees through Earnings Credits on cash holdings, and the Earnings Credit Rates (ECR's) on those holdings are slightly higher than prevailing interest rates on similar short term investments.

ABOUT THE SURVEY

AFP conducted the survey, with support from RBS Citizens, in May 2014, generating 740 responses. The survey respondents were senior finance and treasury executives from a broad range of companies—typically U.S.-based multinationals with a median of $2 billion in revenue. The typical AFP member works at an organization with complex treasury operational needs that can be met only by large regional banks and global banks.

Download key findings from the 2014 AFP Liquidity Survey on www.afponline.org/liquidity

ABOUT THE ASSOCIATION FOR FINANCIAL PROFESSIONALS

Headquartered outside Washington, D.C., the Association for Financial Professionals (AFP) is the professional society that represents finance executives globally. AFP established and administers the Certified Treasury Professional and Certified Corporate FP&A Professional credentials, which set standards of excellence in finance. The quarterly AFP Corporate Cash Indicators serve as a bellwether of economic growth. The AFP Annual Conference is the largest networking event for corporate finance professionals in the world.

AFP, Association for Financial Professionals, Certified Treasury Professional, and Certified Corporate Financial Planning & Analysis Professional are registered trademarks of the Association for Financial Professionals.

ABOUT RBS CITIZENS FINANCIAL GROUP, INC.

RBS Citizens Financial Group, Inc. is a $126 billion commercial bank holding company. It is headquartered in Providence, R.I., and through its subsidiaries has approximately 1,400 branches, approximately 3,600 ATMs and approximately 19,000 colleagues. Its two bank subsidiaries are RBS Citizens, N.A., and Citizens Bank of Pennsylvania. They operate a 12-state branch network under the Citizens Bank brand in Connecticut, Delaware, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island and Vermont; and the Charter One brand in Illinois, Michigan and Ohio. RBSCFG has non-branch retail and commercial offices in more than 30 states. RBSCFG is owned by RBS (the Royal Bank of Scotland Group plc). RBSCFG's website is citizensbank.com.