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US Corporates Building Up Cash Reserves


U.S. companies are hoarding their cash more than they were a year ago, according to the latest analysis by the Association for Financial Professionals (AFP).

In its report released Monday (Oct. 31), the AFP found that businesses in the U.S. aren’t likely to be deploying their corporate cash reserves for investments in the near future. The quarter-over-quarter index in its Corporate Cash Indicators (CCI) report spiked by 11 points to +19, the AFP said, while, year over year, the index increased seven points to +21.

Those statistics suggest that companies in Q3 were focused on building up their cash reserves, while additional data hints that businesses are planning to continue hoarding their cash in the fourth quarter. The AFP noted, however, that companies are predicted to accumulate their cash reserves at a slower pace than they did in the last quarter.

“The October CCI shows that corporates are taking a wait-and-see approach when it comes to cash deployment, likely because of concerns over political uncertainty at home and abroad,” explained AFP President and CEO Jim Kaitz in a statement. “Absent a strategic priority, organizations are holding onto their cash.”

Analysts also found that, in the first three quarters of the year, businesses had signaled plans to grow corporate cash reserves, suggesting companies are “cautious” to deploy cash, the AFP said, adding that U.S. firms signal a “conservative” investment approach.

“The more conservative posture being adopted could be a result of the shift from prime money funds to government funds,” the AFP said in its release.

The trend of increased cash hoarding among U.S. firms was also identified by the AFP last year, while Forbes Insights released its own analysis of the pattern. Forbes Insights’ own report, released in Oct. 2015, found that companies in the country had higher levels of cash reserves than they did before the 2008 financial crisis, driven largely by economic uncertainty.

At the time, Forbes Insights’ analysis found that nearly half of companies surveyed were more focused on short-term investments.


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