Will repatriated cash fund your next low-risk investment?

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With the pending regulation that lowers U.S. corporate tax rates and a offers a repatriation tax holiday, multinationals are weighing the opportunities for the repatriated cash. On a recent C2FO survey of U.S.-based finance professionals, 46 percent of respondents said they have cash overseas and will consider bringing it stateside as the U.S. corporate tax situation changes.

Corporates likely to put repatriated cash to work in short-term, low-risk investments and technology upgrades

A more pertinent topic discussed was not if corporates would bring cash stateside, but how they plan to use that cash. According to an article published by Bloomberg, nearly ninety percent of cash repatriated in a 2004 tax holiday funded activities such as shareholder dividends and stock buybacks.

Our survey indicated a shift from 2004 in how corporates plan to put repatriated funds to use with new tax incentives.  Aside from paying down debt or typical buybacks/investor derivatives, the majority of respondents indicated an interest in short-term, low-risk investments (59 percent) and technology updates (62 percent).

Turn repatriated funds into margin

Sean Van Gundy, managing director of working capital advisory for C2FO explains this shift in goals for repatriated cash.

“Historically, companies have leveraged repatriated cash to buy back stocks, pay shareholder dividends, and even support acquisition activities, however we are beginning to witness a reprioritization in their investment. In the age of digital transformation, cash spend has shifted towards high yield, low-risk growth strategies including digital innovation,” Van Gundy says.

This strategic shift is in line with top finance and treasury trends for 2018. Ten years into recovery with favorable market conditions, there is a renewed focus on innovation within finance and treasury, noted Chad Bruffey, Managing Director, C2FO. “Most organizations have been able to get their arms around the basics and are now expanding their views to look at value-add innovations,” he says. “Dynamic discounting is one that’s on their radar.”

There’s good reason for interest in dynamic discounting. It meets multiple objectives for finance professionals; a no-risk yield on short-term cash, financial technology investment, and offers an innovative trade finance option.

“This investment, especially in supply chain technology, not only bridges the gap between these priorities but has the potential to significantly impact the bottom line,” says Van Gundy.

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Investment in fintech offers a way to optimize working capital metrics

There is a strong likelihood that part of repatriated cash would be used for financial innovation. Financial technology is becoming an attractive investment according to respondents. An overwhelming majority (95 percent) of financial professionals surveyed agree that financial technology can improve their performance metrics.

When asked which metrics were the most important in measuring success of their finance operations, the majority (63 percent) selected working capital position as the most important metric. However, just over a quarter (25 percent) of financial professionals think that EBITDA is their most critical metric, even though this metric is valued by shareholders for companies that are in a good cash position.

“While working capital position is important for finance department performance, finance professionals must also focus on the metrics that matter to shareholders.  That may mean leveraging the strength of your balance sheet to drive EBITDA from existing trade liabilities,” says Kevin Ehinger, VP of Market Operations for C2FO.

Working capital position is primary metric to measure departmental success, say finance and treasury professionals

Finance professionals value the overall working capital position over individual metrics such as DPO. The key to success, however, is not relying on a single metric over the more holistic view: your bottom line.

“Many publicly traded companies target working capital metrics alone, which can be short-sighted,” says Kerri Thurston, CFO at C2FO. “At the end of the day, if the company doesn’t make more money each year and grow, then having great metrics doesn’t matter.”

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Gain a competitive advantage by prioritizing financial technology in 2018

Given the overwhelming consensus on performance improvements of financial technology, over half (54 percent) of those surveyed are prioritizing such an investment in 2018. These individuals stand to gain an early competitive edge.

“Many finance professionals are still focused on day-to-day operational tasks and just keeping the lights on, not adding more lights. Interest in technology innovation will increase as finance and treasury take on a more strategic focus,” says Van Gundy.

Corporates seek competitive advantage by prioritizing financial technology in 2018

“In a rapidly evolving and competitive business environment, outperformance is the only option. Finance and treasury executives, in particular, must now protect their company’s financial position and optimize their working capital to support business operations,” added Van Gundy. “It’s encouraging to see that companies agree that technology is mission critical to their long-term success.”

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C2FO conducted this research at the AFP 2017 Treasury & Finance Conference, held October 15-18, 2017, in San Diego, CA. The 274 respondents were treasury (81 percent) and finance (19 percent) professionals.