$1.84 Trillion in Cash: A Rational Response to Challenging Economic Circumstances

CHICAGO--(BUSINESS WIRE)--The Federal Reserve today reported corporate cash is still hovering at record high levels of $1.84 trillion – almost identical to last quarter. However, cash remains 29% higher than it was just 18 months ago. These cash levels are a rational response to challenging economic circumstances according to Treasury Strategies, a global treasury consultancy, which issued a report earlier this week.

“Looking below the surface, 39% of corporations told Treasury Strategies they increased cash and 23% actually decreased over the last six months”

“With so much cash currently sitting in corporate coffers, executives are under intense pressure to put that cash back to work in the marketplace. There have been charges of hoarding and accusations that these record cash levels are prolonging the recession,” says Cathy Gregg, Partner of Treasury Strategies.

Treasury Strategies worked with over 300 corporate clients to understand the underlying business decisions leading to these cash levels.

“Looking below the surface, 39% of corporations told Treasury Strategies they increased cash and 23% actually decreased over the last six months,” says Anthony Carfang, Partner of Treasury Strategies. “Projections for the next six months show the gap narrows to 30% increasing and 23% decreasing. The reasons for these changes vary widely.”

Companies that increased cash overwhelmingly noted cash from operations and decreased inventories as the driving factors. Conversely, negative cash flow from operations was the primary driver for 54% of companies with decreased cash levels.

“Our clients told us that increased cash levels are the result of improvements in day-to-day operations and independent decisions about capital structures and operations made for the good of each individual company,” notes Gregg. “This highlights their rational management through tough economic times.”

Perhaps the most interesting finding is among those companies expecting cash to decline, 47% are planning capital expenditures and 34% plan acquisitions as the primary uses of their cash.

“Today’s Fed report presented a good news – bad news picture. On the positive side, total corporate borrowing increased by $50.4 billion during the second quarter. The bad news for the U.S. economy is that the increase is more than offset by the $75.5 billion in new direct investment abroad,” adds Carfang.

“There was no evidence, whatsoever, of hoarding or a coordinated capital strike. Rather, companies were making rational individual decisions regarding inventories, capital expenditures, borrowing, debt repayment, acquisitions and dividends within the context of their operating cash flows,” says Gregg.

You can learn more by accessing the full report.

About Treasury Strategies, Inc.

Treasury Strategies, Inc. is the leading Treasury consulting firm working with corporations and financial services providers. Our experience and thought leadership in treasury management, working capital management, liquidity and payments, combined with our comprehensive view of the market, rewards you with a unique perspective, unparalleled insights and actionable solutions. For more information, please visit www.TreasuryStrategies.com.