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Survey: 25% of Finance Executives Expect Cuts in Cash Holdings

Jul 9th 2015
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Cash is king, especially for US businesses in the wake of the recession, yet one in four CPAs in senior finance roles said they expect their companies to reduce corporate cash holdings over the next 12 months, according to a recent American Institute of CPAs (AICPA) survey.

“While most companies are staying put with their current cash holdings, we are seeing a new openness to repositioning some funds for a better long-term payoff,” Valerie Rainey, chair of the AICPA Business and Industry Executive Committee, said in a statement. “As the economy improves, we expect that trend to accelerate.”

While 60 percent of the 570 finance executives polled for the AICPA's most recent Economic Outlook Surveysaid they plan to keep their cash holdings unchanged in the next year, 5 percent anticipated significant reductions of their cash position.

Another 10 percent of CPA business leaders said they plan to moderately reduce their holdings, while 11 percent expect to cut them back a bit. In comparison, 15 percent of respondents said they plan to add to their cash holdings in the coming year.

According to the survey, companies will use the money from their cash holding in the following ways:

  • Forty-five percent will invest in capital projects.
  • Twenty-five percent expect to earmark a dividend or other equity distribution to shareholders.
  • Eighteen percent will use cash to fund acquisitions or other business transactions.
  • Seventeen percent plan to reduce debt, while a similar percentage plan to fund business expansion or hiring.

A majority of finance executives said their companies are not planning to shift their allocation of cash due to proposed regulatory changes that may make it harder to put cash in institutional money-market funds as a short-term tactic to ensure liquidity.

As part of reforms designed to prevent runs on money funds during a financial crisis, the US Securities and Exchange Commission (SEC) is requiring many prime institutional funds to shift from share values that are fixed at a traditional $1 to shares that float in value.

Corporate money managers see the buck-a-share value as a useful hedge to protect short-term investments, but the funds would be far less attractive if values were updated daily, the AICPA noted.

Some 63 percent of survey respondents said they are not reallocating cash yet in advance of the SEC-mandated changes; another 30 percent indicated they are not sure of their plans.

A tiny percentage said they are looking into short-term bond funding (3.9 percent) or government funds (3.3 percent) as alternatives to institutional money-market funds.

Related article:

US Finance Executives More Cautious about Economy


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