The effects of the COVID-19 pandemic are forcing many U.S. businesses to tap into their cash reserves, according to the AFP Corporate Cash Indicators^®, (CCI), a quarterly survey of senior treasury and finance executives. While more companies in the past quarter increased their cash holdings than decreased them, the reasons behind either of these directions suggest turbulent times ahead.

Fully 32% of businesses plan to reduce their cash holdings in the coming quarter. This was shown in the forward-looking indicator, which increased 7 points from last quarter’s reading of   -15 to -8. Only 24% of businesses signaled an intention to increase cash in the coming quarter, and their reasons for doing so are largely defensive.  

This follows a trend that began over the past three months, which saw 28% reduce their holdings. Very few companies are deploying cash to grow their businesses; instead, they are doing so primarily due to a deterioration in business performance, and corresponding reductions in cash inflows. Slightly over one-fourth of companies who reported decreasing cash balances did so to reduce debt.   

Meanwhile, 48% of organizations accumulated cash in the second quarter, primarily as a defensive measure. The quarter-over-quarter index reading was +20 and the year-over year indicator was +29. Some of those cash increases were due to the Payroll Protection Program (PPP), while few respondents indicated that cash increased due to improved performance.

The CCI measure for short-term investment aggressiveness at -17, signaled a continued conservative emphasis on safety and liquidity over yield. This highlights the elevated levels of concern amongst financial professionals and the unease with the current economic environment.

These results are based on 156 responses from senior treasury and finance professionals this quarter.

“Fallout from the COVID-19 pandemic has caused treasury and finance leaders to resort to measures they never thought they’d have to,” said Jim Kaitz, president and CEO of AFP. “Ideally, we want to see companies deploy cash to invest in their business and grow the economy. In this case, they seem to be doing so to remain viable.”

July 2020 AFP Corporate Cash Indicators^®
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Change in cash and short-term investment holdings in the past quarter: 2Q20 v. 1Q20 = +20
Change in cash and short-term investment holdings over the past year: 2Q20 v. 2Q19 = +29
Expected change in cash holdings during 3Q20 = -8
Aggressiveness of short-term investments = -17

The indicators measure recent and anticipated changes in corporate cash balances by calculating increase percentage minus decrease percentage.

Each quarter, AFP asks select senior treasury and finance professionals representing a broad cross section of U.S. businesses the same questions: whether their company’s short-term holdings increased or decreased in the past year and past quarter; whether investment selections for those holdings changed; and whether they expect cash holdings to increase or decrease in the coming quarter.

Participants manage their companies’ cash and short-term investment portfolios and are fully aware of their companies’ liquidity needs and business strategies. Since corporate decisions to grow/shrink the size of cash and short-term investment portfolios reflect their business outlook and direction, changes reported by this broad group of companies are indicators of economic activity.

AFP began collecting quarterly data in January 2011 and has now collected 39 data sets. See www.afponline.org/CCI for answers to frequently asked questions. The next set is slated to be published October 26, 2020. For any press queries, please contact Melissa Rawak at [email protected].