h2>Measures adopted to deal with the economic crisis have led to large surpluses in the best-managed firms, says Forbes report
Almost two-thirds (65%) of finance executives say that their firms are now holding significantly more cash than they did before the crisis of 2008, according to a report from Forbes Insights, the research wing of the Forbes business journal.
Produced in partnership with investment management firm Northern Trust, the paper – Cash Rich: Are You Prepared to Handle the Risks? – highlights a dramatically changed climate for treasurers, in which steps they took to manage the downturn have resulted in large cash surpluses for the most astute corporates.
However, that has presented them with a new burden of ensuring that those valuable funds are protected from any future turbulence or unforeseen risk factors.
In the report’s poll of 374 senior finance executives around the world, 62% said that their companies lean towards the ‘cash rich’ bracket, with the cash on hand far exceeding what is required to fund operations. Only 10% viewed themselves as ‘cash strapped’ – in other words, forced to conserve cash or borrow.
Among the executives who spoke directly to the report was Tina Kobetsky, treasurer of cloud infrastructure specialists VMware. She explained that, in the wake of the company’s 2007 IPO, it had just over $1bn in cash.
Since then, she said, “the business has grown to where we’ve generated so much cash flow, we’re now holding $7.2bn in cash”. While most of that surplus is offshore, the company is keeping a tight rein on it in order to maintain its strategic options and offset “potential economic uncertainty”.
The anonymous treasurer of an unnamed consumer goods firm related a similar experience, saying: “When the financial downturn hit, we immediately ratcheted up our focus on cash conservation and working capital management.” Even in light of the recovery, the organisation has “kept tight control over spending and cash”.
In terms of the strategies that treasurers are adopting to manage their surpluses…
Some firms are also keen to look after their shareholders, with 38% contemplating a stock buyback, and 43% aiming to dividend at least part of their cash. Even so, for most firms, cash balances will remain significantly higher in general.
By contrast with recent research from The Economist – which indicated that treasurers’ strategic roles are being widely overlooked – the Forbes Insights paper noted that 60% of financial executives say that the treasury function’s strategic value is increasing.
To some extent, this has been driven by the role treasury plays in optimising risk and return on today’s comparatively larger cash balances. However, Kobetsky stressed, “The key to adding strategic value in treasury is that not only do you have to understand your own company’s cash flows, but you must be externally focused.”
With that in mind, she said, treasurers should be “paying attention to conditions in the marketplace and thinking about how that should be driving investment and operating decisions, capital structure, Capex, M&A or FX”.
In those fields, she added, “we have to be a strategic partner and trusted adviser.” As such, “it’s my philosophy to invest in training and development for our people [and] pay close attention and learn from what other companies are doing.”