10Minutes on bolstering corporate liquidity

February 2009
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Bolstering corporate liquidity

At a glance

10Minutes on bolstering corporate liquidity discusses how companies today face an environment where credit is still scarce and cash is king. While companies can employ short-term cash management and tax strategies to provide liquidity relief today, they must also develop a more long-term approach to liquidity planning to mange through a re-pricing of credit risk and an extended downturn.

While partial revitalization of the commercial paper market has enabled the most creditworthy companies to access funding for operations,1 many organizations are still suffering from a short-term lack of liquidity.

Additionally, corporate America faces a collective reckoning in 2009 for the credit binge of the past few years. According to ratings agency Standard & Poor’s, corporate loans totaling more than $700 billion will come due this year.2

Factor in a recession and declining profits, and many organizations could have a tough time meeting their operational and loan repayment obligations.

Short term, there are many viable and easily implementable tools to generate cash. More long term, companies need to develop an ongoing strategy to bolster liquidity.

Highlights

  • Credit is very tight, with some companies facing a cash squeeze.
  • Short-term cash management and tax strategies can provide some liquidity relief.
  • I n the medium term, organizations should focus on broader initiatives, such as improving demand forecasting and reducing capital expenditures.
  • Over the long term, the end of easy credit could spell a slowdown for debt-fueled transactions and place a renewed premium on organic growth and performance improvement initiatives.

1 “Commercial Paper Market Hits Speed Bump.” Dow Jones (January 22, 2009).
2“Cost of Borrowing Zooms Up for Corporations.” New York Times (January 18, 2009).