The expression “cash is king” has perhaps never rang truer than today, with companies holding onto more money than in years past, according to a recent national survey.
The 2012 liquidity survey, underwritten by RBS Citizens, concludes that “companies … not just those operating within the U.?S. but also those operating globally, continue to hold high levels of cash. In an extremely low-?return, flat-?yield environment, it is no wonder safety and liquidity remain the top two primary investment objectives for most companies, with yield being a distant third.”
According to the Association for Financial Professionals, an organization of corporate treasurers, the May 2012 survey showed that 71 percent of companies felt less ambitious when considering an investment in money-market funds than in years past. About 41 percent of the 391 respondents had a greater cash balance than the same period in 2011, and the majority of them believe the trend will continue next year. Bank deposits now account for 51 percent of short-term corporate investment balances.
Sections of the report were authored by Thomas Hunt, AFP’s director of treasury services. He acknowledges the report serves as a tool, a way that companies can see how others are allocating their investments.
“With bank deposits, the Federal Deposit Insurance Corp. has unlimited insurance, so companies are choosing to keep their money in bank accounts,” he said. “Also, the earnings credit rate that banks pay to corporations was a rate that was slightly better than money markets, treasuries or other short-term investments.”
“When corporations leave their money in their accounts, they aren’t paid interest, they are paid in credit towards their bank fees that they have for their cash-management needs,” Hunt said. “If you have more credit than fees then you forego the difference. A lot of companies have started to do just that as part of their financial strategy.”
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