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CFOs: Sanguine About the Economy

Increasing number of finance chiefs plan to boost capital spending, tap the capital markets this quarter.

12Mar

Are things looking up? U.S. finance chiefs think so. Fewer CFOs are fretting about the short-term domestic and global economies compared with a year ago, and more are registering a vote of confidence than was the case last quarter, according to our quarterly Global Confidence Survey. Furthermore, despite operating in a marketplace that has been buffeted by a war on terrorism and the Enron debacle, 30 percent of the finance chiefs plan to increase capital spending next quarter, while 40 percent intend to do so over the next fiscal year.


The survey, which polled finance executives about regional and global economic issues, reveals that 33 percent of the respondents are either confident or very optimistic about the domestic economy over the next year, a 22 percentage point rise over last quarter. Also significant is that only 16 percent of U.S. finance executives are either concerned or very pessimistic about the short-term domestic economy, a big improvement over the 50 percent who felt that way a year ago and the 71 percent that were gloomy about the same prospects last quarter. Another hefty jump came from executives who seem to be reserving their judgment for the next survey: 51 percent were neutral on the short-term domestic economy, while only 18 percent played it that close to the vest last quarter.


The newly found assurance may be tied to the confidence CFOs place in their companies' second-quarter sales and profit performance. A whopping 70 percent say that Q2 2002 profits will increase compared with those of Q2 2001; 59 percent predict a rise in second-quarter revenues over last year's mark.


U.S. finance executives are less hopeful about the world economy over the next year. Only 19 percent are confident or very optimistic about the short-term global outlook, a slight rise in confidence over last quarter's 11 percent. Meanwhile, 36 percent say they are either concerned or very pessimistic, though that isn't as dismal as last year's 45 percent and last quarter's 71 percent.


The top four concerns this quarter are the economic downturn, increasing competition, lack of capital, and an increase in the cost of capital.


Despite current fund-raising constraints, 32 percent of the CFOs surveyed will tap the capital markets during the next 12 months to raise funds. Of those executives, 60 percent will access both the public and private markets, while 30 percent will stick to the public markets exclusively. In addition, 30 percent of the finance chiefs who are raising capital this year will issue debt and 10 percent will issue equity, but most--60 percent--will issue both.


Apparently, time heals all confidence problems. An astonishing 91 percent of the CFOs polled say they are either confident or very optimistic about the U.S. economy over the next five years; 75 percent feel the same way about long-term global prospects, which is a 10 percentage point rise over last year.



CFO Global Confidence Survey Results

Attitudes of U.S. CFOs over the next year:
 Domestic EconomyGlobal Economy
Very optimistic7%n/a
Confident26%19%
Neutral51%45%
Concerned13%32%
Very pessimistic3%4%
Attitudes of U.S. CFOs in the next five years:
 Domestic EconomyGlobal Economy
Very optimistic20%10%
Confident71%65%
Neutral6%19%
Concerned3%6%
Very pessimisticn/an/a%
Capital Spending predictions for the next:
 QuarterFiscal Year
Increase30%40%
Decrease20%23%
No change50%37%
Next quarter's performance predictions:
 ProfitRevenue
Increase70%59%
Decrease20%31%
No change10%10%

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