The latest edition of JPMorgan’s working capital index report showed that the time taken to convert inventory purchases into cash flows across S&P 1500 companies fell by eight days in the previous 12 months to its lowest level since 2014.
The July report also highlighted a shift to cash deployment for capital expenditure, increased payouts to shareholders as share buybacks and dividends, and M&A activity since the middle of 2021.
But it has been a different story lower down the food chain, where businesses are still feeling the impact of the pandemic on their supply chains. Fear of recession is compelling treasurers to focus on liquidity and hold on to cash, explains Adnan Ahmad, head of liquidity products Europe, global payments solutions at HSBC.
With interest rates increasing, companies will want to reduce reliance on debt
“With interest rates increasing, companies will want to reduce reliance on debt,” he says. “However, at the same time with recession fears, there is an anticipated slowdown in investments and firms will increase cash buffers. So, if not a build-up, at least a continued maintenance of cash reserves is the expectation.”
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