The Association for Financial Professionals (AFP) 2007 Liquidity Survey has found that U.S. businesses are maintaining high levels of cash and a significant percentage (36%) are building their cash positions. More than a quarter (27%) expect their organizations to increase their short-term balances over the next year. Stockpiling cash is a sign that businesses are unwilling to invest in acquisitions, capital improvements, and expansion due to uncertainty about economic and business conditions.]

"Companies hold and accumulate cash for a number of reasons, including a precautionary cushion against unexpected events, protection against a 'credit crunch' and the ability to fund strategic investment opportunities that may arise," said Jeff Glenzer, Executive Director of AFP's Corporate Treasurers Council. "This survey shows that the current investment climate and economic conditions have not yet presented a compelling argument for companies to invest rather than preserve cash."

The AFP 2007 Liquidity Survey was conducted to provide financial professionals with an understanding of how organizations are currently managing their short-term portfolios. In addition to changes in cash and cash equivalent positions, the survey covered a variety of topics – goals and challenges of cash strategies; use of various investment tools, including multi-family trading portals; selection of investment service providers; cash investment policies; and the evolving status of cash equivalents.

In May 2007, 36 percent of organizations held a larger U.S. cash and short-term equivalent balance than they carried six months earlier. 27 percent of financial professionals expect their organizations to increase their U.S. short-term cash and equivalents balances over next 12 months

Most organizations' policies allow diversity of investment vehicles beyond bank deposits and treasury bills for short-term investments (6.4 vehicles on average), but most organizations remain conservative, on average using 2.7 different investment options for their cash and short-term equivalent balances.

Organizations typically expect to earn up to an additional 25 basis points by investing in cash equivalents rather than cash investments. One-third of organizations that invested in either auction-rate securities or variable rate demand notes reduced use of these investment tools after the major accounting firms ruled that these instruments were not "cash equivalents."

Survey respondents reported that they have not experienced and do not expect significant changes in their cash and cash equivalents balances despite the new accounting decisions and recent Financial Accounting and Standards Board's (FASB) rulings to eliminate cash equivalents. However, it may be too soon to determine what financial impact the FASB ruling may have on businesses because not enough time has passed for organizations to assess the impact, if any.

The survey did show companies are permitted to spread their short-term investments across a variety of investment vehicles using money market mutual funds (76%), commercial paper (69%), and repurchase agreements (57%). At least two-thirds of organizations allow at least half of their cash and short-term equivalents balances to be placed in bank deposits, money market mutual funds, agency securities and treasury bills.