Companies cash stacks grow after strong 2013

Companies have built up their cash piles after a strong 2013, according to a survey by Capita Asset Services and Financial Director.

Net cash positions have built up by an average of 11% compared to the last financial year, according to the survey of 81 finance directors.

More than half (57%) increased their net cash holdings, and they saw an increase of an average 26%. Just 17% of respondents reduced their company’s net cash position.

The average company holds £19.8m in cash and equivalents, with a short-term debt of £11.8m.

Rising sales (38%) and profits (35%) were the key reasons behind the cash boost, while one in five said its working capital position had contributed too.

“Firms took drastic action to build cash reserves to insulate themselves enough to survive the recession, and are now taking advantage of rising sales and profits to strengthen balance sheets further and pay down debt,” said Justin Damer, commercial director of Capita Asset Services.

“However, there is a fine line to walk between prudence and being overly cautious. Too much financial insulation can stifle growth, lower long-term returns and reduce a company’s appeal to investors.”

Four in ten FDs review their company’s cash arrangements daily, while nearly a quarter do so less than once a month.

More than two-thirds (68%) predict stronger sales this year, with 47% expecting this to lead to greater cash piles. More than a third (38%) expect to boost cap-ex this year, with just 14% foreseeing a reduction.

FDs are prioritising paying down debt over returning capital to shareholders, with 29% paying down long term debt.

“Increasing confidence bodes well, and it’s very encouraging to see higher capital expenditure planned by so many firms, but it’s clear that liquidity remains central to corporate finances,” said Damer.

“Given the growing scale and importance of cash management, efficient and flexible asset administration is more important than ever to the success of UK plc, and should be top priority for finance directors.”