The coronavirus pandemic caused U.S. companies to hold onto their cash in first quarter 2020. However, the current quarter is likely to see many organizations releasing some of that cash out of necessity.

Entering  Q1, businesses displayed some signs of willingness to deploy their cash, though it appears that the global pandemic caused them to deviate significantly from their plans, according to the AFP Corporate Cash Indicators^® (CCI), AFP’s quarterly survey of senior treasury and finance executives. During the first quarter of 2020, businesses continued to accumulate cash and short-term investments, though they did so at a slightly lower rate than the previous quarter. The quarter-over-quarter index reading decreased 7 points to +24, while the year-over-year indicator decreased by one point to +32. The year-over-year reading is just one point lower than the +33 reading last quarter, which was the highest rate of cash accumulation since the inception of the CCI in 2011.    

Interestingly, respondents are anticipating a significant decrease in cash reserves during the current quarter. The forward-looking indicator, measuring expectations for changes in cash holdings in the current quarter, decreased 12 points from the reading last quarter to -15.

A decrease in cash reserves at this rate would, in more normal times, signal extremely high confidence in the economy and the willingness to deploy cash by increasing capital expenditure and hiring. However, this quarter’s reading of -15 is a consequence of the global pandemic creating havoc on the economy and the resulting corporate cash flows. With travel restrictions, social distancing measures, a precipitous decline in the stock market and lockdowns in most states, industries are being impacted severely and business leaders are doing all they can to preserve cash and liquidity. With cash receipts slowing down significantly, management at companies are likely being compelled to dip into their cash reserves to keep operations running as seamlessly as possible.

The CCI measure for short-term investment aggressiveness decreased significantly from -1 to -23 during the first quarter of 2020, signaling an extremely conservative emphasis on safety and liquidity over yield. This is the lowest reading for short-term investments since the inception of the CCI in January 2011. This highlights the high levels of concern amongst financial professionals and their extreme uneasiness with the current economic environment.

These results are based on 139 responses from senior treasury and finance professionals this quarter. AFP began collecting quarterly data in January 2011 and has now collected 37 data sets. See www.afponline.org/CCI for greater insights into numbers and answers to frequently asked questions. The next set is slated to be published July 28, 2020. For any press queries, please contact Melissa Rawak at [email protected].