Businesses have responded to the pandemic by tapping into their cash reserves, as around 32 percent of businesses plan to diminish their cash holdings in the next quarter, the Association for Financial Professionals (AFP) announced in a press release.
The group’s AFP Corporate Cash Indicators (CCI) also showed that there are only 24 percent of businesses intent on increasing cash holdings next quarter — a number that forecasts hard times ahead, the release stated.
The statistics do note that more companies have increased their holdings this quarter than decreased them, unlike last quarter.
But the reasons have to do with many businesses’ new pandemic-related habits of not raising much money to grow their businesses. According to the release, the companies are deploying cash mostly to offset the deterioration in business prospects and connected declines in cash flows. Over a quarter did so to offset debt.
The pandemic has increased fears from U.S. investors over the future, PYMNTS reported in March, with high debt levels and tumultuous travel and retail forecasts adding to worries about the economy.
The release stated that 48 percent of companies gathered cash in the second quarter as a defensive measure to offset the possible troubles of the pandemic. Some of the increases came from the Paycheck Protection Program (PPP); only a few businesses indicated that the increases came from better general performances.
The CCI statistics show many companies are favoring safety and liquidity over yield, which shows “the elevated levels of concern amongst financial professionals and the unease with the current economic environment,” according to the release.
“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, according to the press release. “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.”