1. Global Business Outlook
A joint survey effort between
Duke University
and
CFO magazine
John R. Graham
D. Richard Mead Jr. Family Professor of Finance
Director, Global Business Outlook Survey
I hope that you find these slides useful. They are updated through 2009 Q3. I present this deck towards the end of Corporate Finance when I teach the course at Duke, linking course concepts to the current real world outlook. I usually present just parts of this deck. Feel free to cut and paste, with proper attribution. Please let me know if you have questions or comments. -- John Graham
Global Business Outlook Duke University Fall 2009

2. Global Business Outlook
Quarterly Survey
Since July 1996 (54 quarters)
Send to CFO subscribers and ‘Friends of Duke’
Title of CFO, Treasurer, VP Finance
Global: US, Europe, Asia, China
1000+ responses
Present results quarterly
Frequent press coverage
MSNBC, WSJ, FT, BW, Wash Post, NPR, podcast, etc.
Global Business Outlook Duke University Fall 2009

3. Global Business Outlook Duke University Fall 2009
Content
Ask questions about
Economic Outlook
Similar questions every quarter
Topical issues
Effects of credit crisis, gov’t intervention in financial markets, cost of fuel, etc.
Global Business Outlook Duke University Fall 2009

4. Global Business Outlook Duke University Fall 2009

5. Global Business Outlook Duke University Fall 2009

6. Global Business Outlook Duke University Fall 2009

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9. Global Business Outlook Duke University Fall 2009

10. Top CFO Concerns (September 2009)
External:
Consumer Demand
Federal Government Agenda/Policies
Credit Markets/Interest Rates
Housing Market Fallout
Internal:
Ability to Forecast Results
Working Capital Management
Maintaining Employee Morale / Productivity
Balance Sheet Weakness
Global Business Outlook Duke University Fall 2009

11. Global Business Outlook Duke University Fall 2009

12. Global Business Outlook Duke University Fall 2009

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18. Global Business Outlook Duke University Fall 2009

19. Global Business Outlook Duke University Fall 2009
Expected percentage change in earnings over next 12 months
Source: Duke University / CFO Magazine Global Business Outlook
Global Business Outlook Duke University Fall 2009

20. Global Business Outlook Duke University Fall 2009
Expected percentage change in earnings over next 12 months
Source: Duke University / CFO Magazine Global Business Outlook
Global Business Outlook Duke University Fall 2009

21. Global Business Outlook Duke University Fall 2009
Expected percentage change in domestic employment over next 12 months
Source: Duke University / CFO Magazine Global Business Outlook
Global Business Outlook Duke University Fall 2009

22. Global Business Outlook Duke University Fall 2009
Expected percentage change in domestic employment over next 12 months
Source: Duke University / CFO Magazine Global Business Outlook
Global Business Outlook Duke University Fall 2009

23. Global Business Outlook Duke University Fall 2009
Expected percentage change in outsourced employment over next 12 months
Source: Duke University / CFO Magazine Global Business Outlook
Global Business Outlook Duke University Fall 2009

24. Global Business Outlook Duke University Fall 2009
Expected percentage change in outsourced employment over next 12 months
Source: Duke University / CFO Magazine Global Business Outlook
Global Business Outlook Duke University Fall 2009

25. Global Business Outlook Duke University Fall 2009
Expected percentage change in prices of own firm’s products over next 12 months
Source: Duke University / CFO Magazine Global Business Outlook
Global Business Outlook Duke University Fall 2009

26. Global Business Outlook Duke University Fall 2009
Expected percentage change in prices of own firm’s prices over next 12 months
Source: Duke University / CFO Magazine Global Business Outlook
Global Business Outlook Duke University Fall 2009

27. Global Business Outlook Duke University Fall 2009
Expected percentage change in wages & salaries over next 12 months
Source: Duke University / CFO Magazine Global Business Outlook
Global Business Outlook Duke University Fall 2009

28. Global Business Outlook Duke University Fall 2009
Expected percentage change in wages & salaries over next 12 months
Source: Duke University / CFO Magazine Global Business Outlook
Global Business Outlook Duke University Fall 2009

29. Global Business Outlook Duke University Fall 2009
Expected percentage change in health care costs over next 12 months
Source: Duke University / CFO Magazine Global Business Outlook
Global Business Outlook Duke University Fall 2009

30. Global Business Outlook Duke University Fall 2009
Expected percentage change in health care costs over next 12 months
Source: Duke University / CFO Magazine Global Business Outlook
Global Business Outlook Duke University Fall 2009

31. Global Business Outlook Duke University Fall 2009
Expected percentage change in capital spending over next 12 months
Source: Duke University / CFO Magazine Global Business Outlook
Global Business Outlook Duke University Fall 2009

32. Global Business Outlook Duke University Fall 2009
Expected percentage change in capital spending over next 12 months
Source: Duke University / CFO Magazine Global Business Outlook
Global Business Outlook Duke University Fall 2009

33. Global Business Outlook Duke University Fall 2009
Expected percentage change in capital spending over next 12 months
Source: Duke University / CFO Magazine Global Business Outlook
Global Business Outlook Duke University Fall 2009

34. Global Business Outlook Duke University Fall 2009
CFO Optimism about own
country’s economy, on a
scale of 0 to 100
For U.S. firms,
firm’s financial prospects
also shown (in green)
Source:
Global Business Outlook Duke University Fall 2009

35. Can CFOs Predict the Future?
CFOs predict the future reasonably well
CFO optimism about own firm is highly correlated with future national numbers for
Earnings (68% correlation with next year’s earnings)
Employment (55%) – see chart
Capital Spending (56%)
Source:
Global Business Outlook Duke University Fall 2009

36. Global Business Outlook Duke University Fall 2009
Why care what CFOs say?
2) CFOs say it first
Correlation with future quarter’s value for
CEO optimism (81%, 1 qtr ahead) – see chart
ISM (66%, 1)
Conf Board consumer confidence (86%, 2)
Michigan consumer confidence (71%, 2)
UBS/Gallup Investor confidence (49%, 2)
Source:
Global Business Outlook Duke University Fall 2009

37. Global Business Outlook Duke University Fall 2009
Plan to acquire entire firm or part of firm in next 12 months (top 4 US industries)
Source: March 2009 Duke University / CFO magazine Global Business Outlook survey
Global Business Outlook Duke University Fall 2009

38. Global Business Outlook Duke University Fall 2009
Percentage of respondents whose firm has been directly adversely affected by the credit market conditions
Source: Duke University / CFO Magazine Global Business Outlook
Global Business Outlook Duke University Fall 2009

39. Global Business Outlook Duke University Fall 2009
Percentage of respondents whose firm has been directly adversely affected by the credit market conditions
Source: Duke University / CFO Magazine Global Business Outlook
Global Business Outlook Duke University Fall 2009

40. Global Business Outlook Duke University Fall 2009
Has your company been directly affected by credit crisis? %yes US firms, by credit rating
Source:
Global Business Outlook Duke University Fall 2009

41. Global Business Outlook Duke University Fall 2009
Among companies affected by credit crisis … how has your company been affected?
Source:
Global Business Outlook Duke University Fall 2009

42. Global Business Outlook Duke University Fall 2009
Actions taken in response to credit crisis
Firms subject to financial constraints plan to cut R&D, capital spending, etc. more than deeply than plans for unconstrained firms
Figure 2: This figure displays U.S. firms’ planned changes (% per year) in R&D expenditures, capital expenditures, marketing expenditures, total number of domestic employees, cash holdings, and dividend payments as of the fourth quarter of 2008 (crisis period). Responses are averaged across different degrees of financial constraints. See text for additional details.
Figure 2/3 from Campello, Graham, Harvey, “The Real Effects of the Credit Crisis”
Global Business Outlook Duke University Fall 2009

43. Global Business Outlook Duke University Fall 2009
Cash holdings and cash burn rate during crisis
Unconstrained firms maintained cash balances during Financially constrained firms cash on balance sheet fell by 1/5 (from 15.1% of assets to 11.7%)
Figure 4: This figure displays firms’ cash savings behavior (the ratio of cash and liquid securities to total assets) now and one year ago. Responses are averaged across sample partitions based on size, ownership, credit ratings, and financial constraints. See text for additional details.
Figure 4 from Campello, Graham, Harvey, “The Real Effects of the Credit Crisis”
Global Business Outlook Duke University Fall 2009

44. Global Business Outlook Duke University Fall 2009
Where holding liquid assets during crisis?
Figure 5: This figure displays firms’ cash management (allocation of cash across different liquid instruments) now and last Summer. Responses are averaged across sample partitions based on size, ownership, credit ratings, and financial constraints. Detailed information is only available from the U.S. survey. See text for additional details.
Figure 5 from Campello, Graham, Harvey, “The Real Effects of the Credit Crisis”
Global Business Outlook Duke University Fall 2009

45. Global Business Outlook Duke University Fall 2009
Figure 6
Figure 6: This figure displays firms’ LC management behavior (the ratio of LC to total assets) now and one year ago. Responses are averaged across sample partitions based on size, ownership, credit ratings, and financial constraints. See text for additional details.
Constrained firms have access to larger lines of credit (as a percentage of firm assets) – see bottom row.
Figure 4 from Campello, Graham, Harvey, “The Real Effects of the Credit Crisis”
Global Business Outlook Duke University Fall 2009

46. Global Business Outlook Duke University Fall 2009
Line of credit use during crisis
17% of constrained U.S. firms said that they borrowed now from line of credit in case their bank cut off access in the future … a “run” on bank lines of credit.
Figure 7: This figure displays firms’ LC management behavior (reasons for withdrawing funds from existing LCs). Responses are averaged across sample partitions based on size, ownership, credit ratings, and financial constraints. See text for additional details.
Figure 7 from Campello, Graham, Harvey, “The Real Effects of the Credit Crisis”
Global Business Outlook Duke University Fall 2009

47. Global Business Outlook Duke University Fall 2009
To what extent have you drawn down your line of credit (as % of maximum)?
Firms rates B or lower had borrowed a remarkable 70% of maximum from their bank credit lines in early 2009.
These low-rated firms borrowed less from bank lines of credit in Q3 versus earlier in 2009.
Global Business Outlook Duke University Fall 2009

48. Global Business Outlook Duke University Fall 2009
Reasons to limit line of credit use during crisis
Figure 8: This figure displays firms’ LC management behavior (reasons for limiting the use of existing LCs). Responses are averaged across sample partitions based on size, ownership, credit ratings, and financial constraints. Detailed information is only available from the U.S. and European surveys (only U.S. is displayed). See text for additional details.
Figure 8 from Campello, Graham, Harvey, “The Real Effects of the Credit Crisis”
Global Business Outlook Duke University Fall 2009

49. Global Business Outlook Duke University Fall 2009
Credit constrained from pursuing NPV>0 projects
Figure 10: This figure displays the proportion of firms indicating that their ability to pursue profitable investment opportunities is linked to their ability to access external financing in “normal times.” Responses are averaged across sample partitions based on size, ownership, credit ratings, and financial constraints. See text for additional details.
Financial constraint causes 46% of US firms to bypass positive NPV projects during normal times, and 86% of firms to bypass positive NPV projects as of December 2008.
Figure 10/11 from Campello, Graham, Harvey, “The Real Effects of the Credit Crisis”
Global Business Outlook Duke University Fall 2009

50. Global Business Outlook Duke University Fall 2009
Do financial constraints limit ability to pursue attractive (NPV>0) investments? % yes
Updated 2008 Q4
Overall average : 62 / 76
Source:
Global Business Outlook Duke University Fall 2009

51. Global Business Outlook Duke University Fall 2009
How fund investment if credit constrained?
Figure 12: This figure displays the proportion of firms indicating how they fund their investment when external capital is limited. Responses are averaged across sample partitions based on size, ownership, credit ratings, and financial constraints. See text for additional details.
Figure 12 from Campello, Graham, Harvey, “The Real Effects of the Credit Crisis”
Global Business Outlook Duke University Fall 2009

52. Global Business Outlook Duke University Fall 2009
What happens to corporate investment plans if you can not borrow externally?
Low rated firms more likely to cancel investment projects if external funding unavaliable.
Figure 12 from Campello, Graham, Harvey, “The Real Effects of the Credit Crisis”
Global Business Outlook Duke University Fall 2009

53. Global Business Outlook Duke University Fall 2009
To raise funds during the credit crisis … have you sold assets? % who answered yes
70% of constrained firms sell assets to provide general funding in Dec 2008
Source: Campello, Graham, Harvey, “The Real Effects of the Credit Crisis”
Global Business Outlook Duke University Fall 2009

54. Global Business Outlook Duke University Fall 2009
Among companies affected by credit crisis …what will your company do in response?
Source:
Global Business Outlook Duke University Fall 2009

55. Global Business Outlook Duke University Fall 2009
When will economic recovery begin? Cumulative percent
Updated 2009 Q3
Source:
Global Business Outlook Duke University Fall 2009

56. Global Business Outlook Duke University Fall 2009
Where do firms hold most of their cash? (Before/After Lehman Collapse)
Source:
Global Business Outlook Duke University Fall 2009

57. Global Business Outlook Duke University Fall 2009
Strategic Focus (assign 100 priority points)
As of June 2009:
-- Should add to 100
Revenue Growth (increase sales to existing customers, find new customers)
Direct Cost (improve cost efficiency of sourcing, manufacturing, service delivery)
Overhead Cost (improve efficiency of shared services, SG&A, )
Asset Efficiency (improve mgmt of inventory, PP&E, receivables/payables)
Capability Development (strengthen managerial and operational compentencies)
Source:
Global Business Outlook Duke University Fall 2009

58. Global Business Outlook Duke University Fall 2009

59. Global Business Outlook Duke University Fall 2009
How does your company’s domestic employment compare to year-end 2007?
As of September 2009
Global Business Outlook Duke University Fall 2009

60. Global Business Outlook Duke University Fall 2009
About when do you anticipate domestic employment at your firm to return to year-end 2007 levels? Cumulative Percent
Global Business Outlook Duke University Fall 2009

61. Global Business Outlook Duke University Fall 2009
About when do you anticipate domestic employment at your firm to return to year-end 2007 levels? Cumulative Percent
Global Business Outlook Duke University Fall 2009

62. Global Business Outlook Duke University Fall 2009
About when do you anticipate domestic employment at your firm to return to year-end 2007 levels? Cumulative Percent
Global Business Outlook Duke University Fall 2009

63. Global Business Outlook Duke University Fall 2009
Compared to current sales revenue, how much will your company’s revenue need to increase for you to increase domestic employment to year-end 2007 levels?
Global Business Outlook Duke University Fall 2009

64. Global Business Outlook Duke University Fall 2009
As of September 2009, are passed-up investment projects permanently cancelled or does your company anticipate pursuing them eventually?
Global Business Outlook Duke University Fall 2009

65. Global Business Outlook Duke University Fall 2009
Do you believe your company would benefit from the adoption of a national healthcare system in the United States?
Global Business Outlook Duke University Fall 2009

66. Global Business Outlook Duke University Fall 2009
Do you believe your company would benefit from the adoption of a national healthcare system in the United States?
Global Business Outlook Duke University Fall 2009

67. Global Business Outlook Duke University Fall 2009
Reason(s) your company would not benefit from the adoption of a national healthcare system
Global Business Outlook Duke University Fall 2009

68. Global Business Outlook Duke University Fall 2009
Reason(s) your company would not benefit from the adoption of a national healthcare system
Global Business Outlook Duke University Fall 2009

69. Global Business Outlook Duke University Fall 2009
What payroll actions has your company taken or are you planning to take in response to the recession? %yes, US firms, 2009Q1
Source:
Global Business Outlook Duke University Fall 2009

70. Global Business Outlook Duke University Fall 2009
What payroll actions has your company taken or are you planning to take in response to the recession? %yes, US Tech Firms, 2009Q1
Source:
Global Business Outlook Duke University Fall 2009

71. Global Business Outlook Duke University Fall 2009
What payroll actions has your company taken or are you planning to take in response to the recession? %yes, US Manu Firms, 2009Q1
Source:
Global Business Outlook Duke University Fall 2009

72. Credit Line Terms – Q2 2008 vs. Q2 2009
U.S.A.
Basis
points
Basis
points
Months
30.1
27.6
26.4
196.8
Source:
June 2009 survey. See
Campello, Giambona,
Graham, and Harvey, 2009
12.7
127.5
Europe
Asia
12.5
30.5
193.5
22.6
115.5
20.8
26.9
Commitment fee (for unused part of credit line).
Interest Rate markup above LIBOR (or Prime) for bank lines of credit
Tenor (or maturity) of bank line of credit.
8.9
27.7
87.9
25.3
124.5

73. Interest Rate Markup – Q2 2008 vs. Q2 2009 (US data)
Constrained Credit vs. Unconstrained Credit Firms
355.9
141.3
105.1
Units = basis points
191.4
Source:
June 2009 survey. See
Campello, Giambona,
Graham, and Harvey
Non-Investment Grade vs. Investment Grade Firms
Negative Cash Flow vs. Positive Cash Flow Firms
189.3
184.1
213.1
155.0
191.0
Interest Rate markup above LIBOR (or Prime) for bank lines of credit
119.2
128.4
117.9

74. Maturity of new lines – Q2 2008 vs. Q2 2009 (US data)
Constrained Credit vs. Unconstrained Credit Firms
30.7
28.3
29.1
22.5
Units = months
Source:
June 2009 survey. See
Campello, Giambona,
Graham, and Harvey
Non-Investment Grade vs. Investment Grade Firms
Negative Cash Flow vs. Positive Cash Flow Firms
36.6
37.7
31.2
28.8
29.1
25.9
23.0
20.5