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Global Business Outlook A joint survey effort between Duke University and CFO magazine 1Global Business Outlook Duke University Winter 2009 John R. Graham.

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Presentation on theme: "Global Business Outlook A joint survey effort between Duke University and CFO magazine 1Global Business Outlook Duke University Winter 2009 John R. Graham."— Presentation transcript:

1 Global Business Outlook A joint survey effort between Duke University and CFO magazine 1Global Business Outlook Duke University Winter 2009 John R. Graham D. Richard Mead Jr. Family Professor of Finance Director, Global Business Outlook Survey

2 Global Business Outlook Quarterly Survey – Since July 1996 (55 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 Winter 20092

3 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 Winter 20093

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11 Top CFO Concerns (December 2009) External: Consumer Demand Federal Government Agenda/Policies Price Pressure Credit Markets/Interest Rates Internal: Margin Maintenance Ability to Forecast Results Maintaining Morale / Productivity Working Capital Management Global Business Outlook Duke University Winter 200911

12 Global Business Outlook Duke University Winter 200912

13 Global Business Outlook Duke University Winter 200913

14 Global Business Outlook Duke University Winter 200914

15 Global Business Outlook Duke University Winter 200915

16 Global Business Outlook Duke University Winter 200916

17 Global Business Outlook Duke University Winter 200917

18 Global Business Outlook Duke University Winter 200918 Expected percentage change in earnings over next 12 months Source: Duke University / CFO Magazine Global Business Outlook

19 Global Business Outlook Duke University Winter 200919 Expected percentage change in domestic employment over next 12 months Source: Duke University / CFO Magazine Global Business Outlook

20 Global Business Outlook Duke University Winter 200920 Expected percentage change in outsourced employment over next 12 months Source: Duke University / CFO Magazine Global Business Outlook

21 Global Business Outlook Duke University Winter 200921 Expected percentage change in prices of own firm’s products over next 12 months Source: Duke University / CFO Magazine Global Business Outlook

22 Global Business Outlook Duke University Winter 200922 Expected percentage change in wages & salaries over next 12 months Source: Duke University / CFO Magazine Global Business Outlook

23 Global Business Outlook Duke University Winter 200923 Expected percentage change in health care costs over next 12 months Source: Duke University / CFO Magazine Global Business Outlook

24 Global Business Outlook Duke University Winter 200924 Expected percentage change in capital spending over next 12 months Source: Duke University / CFO Magazine Global Business Outlook

25 Global Business Outlook Duke University Winter 200925 Expected percentage change in capital spending over next 12 months Source: Duke University / CFO Magazine Global Business Outlook

26 Global Business Outlook Duke University Winter 200926 Expected percentage change in capital spending over next 12 months Source: Duke University / CFO Magazine Global Business Outlook

27 Global Business Outlook Duke University Winter 200927 CFO Optimism about own country’s economy, on a scale of 0 to 100 For U.S. firms, CFO Optimism about own firm’s financial prospects also shown (in green) Source: www.cfosurvey.org

28 Can CFOs Predict the Future? 1)CFOs predict the future reasonably well CFO optimism about own firm is highly correlated with future national numbers for – Earnings (43% correlation with next year’s earnings) – Employment (81%) – see chart – GDP (78%) Global Business Outlook Duke University Winter 200928 Source: www.cfosurvey.org

29 Why care what CFOs say? 2) CFOs say it first Correlation with future quarter’s value for – CEO optimism (84%, 1 qtr ahead) – see chart – ISM (75%, 1) – Conf Board consumer confidence (86%, 2) – Michigan consumer confidence (81%, 1) – UBS/Gallup Investor confidence (49%, 2) Global Business Outlook Duke University Winter 200929 Source: www.cfosurvey.org

30 Global Business Outlook Duke University Winter 200930 Plan to acquire entire firm or part of firm in next 12 months (top 4 US industries)

31 Global Business Outlook Duke University Winter 200931 Percentage of respondents whose firm has been directly adversely affected by the credit market conditions Source: Duke University / CFO Magazine Global Business Outlook

32 Global Business Outlook Duke University Winter 200932 Has your company been directly affected by credit crisis? %yes US firms, by credit rating Source: www.cfosurvey.org

33 Global Business Outlook Duke University Winter 200933 Among companies affected by credit crisis … how has your company been affected? Source: www.cfosurvey.org

34 Global Business Outlook Duke University Winter 200934 Figure 2/3 from Campello, Graham, Harvey, “The Real Effects of the Credit Crisis” 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

35 Global Business Outlook Duke University Winter 200935 Cash holdings and cash burn rate during crisis Figure 4 from Campello, Graham, Harvey, “The Real Effects of the Credit Crisis” Unconstrained firms maintained cash balances during 2008. Financially constrained firms cash on balance sheet fell by 1/5 (from 15.1% of assets to 11.7%)

36 Global Business Outlook Duke University Winter 200936 Figure 6 Figure 4 from Campello, Graham, Harvey, “The Real Effects of the Credit Crisis”

37 Global Business Outlook Duke University Winter 200937 Figure 7 from Campello, Graham, Harvey, “The Real Effects of the Credit Crisis” 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.

38 Global Business Outlook Duke University Winter 200938 To what extent have you drawn down your line of credit (as % of maximum)?

39 Global Business Outlook Duke University Winter 200939 Figure 8 from Campello, Graham, Harvey, “The Real Effects of the Credit Crisis” Reasons to limit line of credit use during crisis

40 Global Business Outlook Duke University Winter 200940 Figure 10/11 from Campello, Graham, Harvey, “The Real Effects of the Credit Crisis” Credit constrained from pursuing NPV>0 projects

41 Global Business Outlook Duke University Winter 200941 Do financial constraints limit ability to pursue attractive (NPV>0) investments? % yes Source: www.cfosurvey.org

42 Global Business Outlook Duke University Winter 200942 Figure 12 from Campello, Graham, Harvey, “The Real Effects of the Credit Crisis” How fund investment if credit constrained?

43 Global Business Outlook Duke University Winter 200943 What happens to corporate investment plans if you can not borrow externally? Figure 12 from Campello, Graham, Harvey, “The Real Effects of the Credit Crisis”

44 Global Business Outlook Duke University Winter 200944 To raise funds during the credit crisis … have you sold assets? % who answered yes Source: Campello, Graham, Harvey, “The Real Effects of the Credit Crisis”

45 Global Business Outlook Duke University Winter 200945 As of December 2009, when do you anticipate domestic employment at your firm to return to year- end 2007 levels? Cumulative Percent

46 Global Business Outlook Duke University Winter 200946 As of December 2009, when do you anticipate domestic employment at your firm to return to year- end 2007 levels? Cumulative Percent

47 Global Business Outlook Duke University Winter 200947 As of December 2009, when do you anticipate domestic employment at your firm to return to year- end 2007 levels? Cumulative Percent

48 Global Business Outlook Duke University Winter 200948 As of September 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?

49 Global Business Outlook Duke University Winter 200949 Reason(s) your company would not benefit from the adoption of a national healthcare system

50 Credit Line Terms – Q2 2008 vs. Q2 2009 12.7 26.4 127.5 196.8 30.1 27.6 U.S.A. Europe Asia 20.8 22.6 87.9 115.5 30.5 26.9 8.9 12.5 124.5 193.5 27.7 25.3 Source: www.cfosurvey.orgwww.cfosurvey.org June 2009 survey. See Campello, Giambona, Graham, and Harvey, 2009 Basis points Basis points Months 50Global Business Outlook Duke University Winter 2009

51 Interest Rate Markup – Q2 2008 vs. Q2 2009 (US data) 191.4 355.9 105.1 141.3 119.2 189.3 155.0 184.1 117.9 213.1 128.4 191.0 Constrained Credit vs. Unconstrained Credit Firms Non-Investment Grade vs. Investment Grade Firms Negative Cash Flow vs. Positive Cash Flow Firms Source: www.cfosurvey.orgwww.cfosurvey.org June 2009 survey. See Campello, Giambona, Graham, and Harvey Units = basis points 51Global Business Outlook Duke University Winter 2009

52 Maturity of new lines – Q2 2008 vs. Q2 2009 (US data) 28.3 22.5 30.7 29.1 25.9 36.6 37.7 23.0 20.5 31.2 28.8 Constrained Credit vs. Unconstrained Credit Firms Non-Investment Grade vs. Investment Grade Firms Negative Cash Flow vs. Positive Cash Flow Firms Source: www.cfosurvey.orgwww.cfosurvey.org June 2009 survey. See Campello, Giambona, Graham, and Harvey Units = months 52Global Business Outlook Duke University Winter 2009

53 53 How would you rate your employees’ morale level? Fair + Poor, 2009Q4 Source: www.cfosurvey.org

54 Global Business Outlook Duke University Winter 200954 Relative to 2008, does your company plan to adjust its target compensation mix for 2010? Net percentage change, 2009Q4 Source: www.cfosurvey.org

55 Global Business Outlook Duke University Winter 200955 Relative to 2008, does your company plan to adjust its target compensation mix for 2010? Net percentage change, 2009Q4 Source: www.cfosurvey.org

56 Global Business Outlook Duke University Winter 200956 Among companies that have taken action, will you restore these areas to pre-recession levels in 2010? 2009Q4 Source: www.cfosurvey.org

57 Global Business Outlook Duke University Winter 200957 Among companies with reduced growth prospects, they are reduced because... 2009Q4 Source: www.cfosurvey.org

58 Global Business Outlook Duke University Winter 200958 Why are banks less willing to makes loans today vs. Summer 2008 (pre-crisis)? 2009Q4 Source: www.cfosurvey.org

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