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CFO Survey


Optimistic about Economy and Corporate Prospects

Higher Long-Term Interest Rates Forecast but Not Feared

FLORHAM PARK, N.J. and NEW YORK, March 10, 2005 — Optimistic about the economy and their companies, CFOs are forecasting a 13% increase in capital spending over the next 12 months. Even though they expect long-term interest rates to rise, they are not worried about the effect on their business.

According to the first quarter “CFO Outlook Survey,” conducted by Financial Executives International and Baruch College’s Zicklin School of Business, CFOs rate their optimism on the economy at 71 out of a possible 100 and their optimism about the financial prospects for their company at 75. Both numbers have been within a two-point range of these rates for the past four quarters.

Survey results seem to confirm broader senior management optimism: earlier in the quarter the Business Roundtable’s CEO survey reported a high level of confidence. The CFOs’ forecasts also substantiate recent theories that businesses, not consumers, will be leading this economic expansion.

This quarter’s 13% forecast for a capital spending increase over the next year closely tracks their forecast from last quarter and remains significantly higher than the 8% increase forecast six months ago.

CFOs Prepared for Rates to Rise

More than 90% of respondents expect long-term interest rates to rise over the next 12 months. Sixty-six percent expect 10-year rates to land between 4.29% (their yield on February 28) and 4.75%, and 25% predict they will go above 4.75%. Nevertheless, rising interest rates ranked sixth in a list of their companies’ biggest worries, far behind the traditional business pressures of competition and U.S. economic growth but slightly ahead of the price of oil and cost of compliance.

“In the past several surveys, CFOs have forecast short-term interest rates more accurately than the markets,” said Burton Rothberg, Assistant Professor of Accounting at Baruch College. “Interesting, in contrast to prior quarters when CFOs felt that futures market were overestimating interest rate increases, a quarter of our respondents are now expecting a significant rise. Their attitude about long-term rates suggests that CFOs won’t be taken by surprise by higher rates and are prepared for them. This bodes well for the economy as a whole.”

Health Care Squeeze

CFOs expect health care costs to rise 9% in the next 12 months. The impact is affecting employee coverage. Forty-two percent of private companies, which are typically smaller than the public companies in the survey, say that high costs have caused them to trim benefits. Of those cutting back, 71% have reduced the number of plan benefits and features, while 79% now require higher employee contributions. Of the 10% of respondents who said they enhanced their health care coverage despite rising costs, 78% said they improved the quality of the benefits.

Change in 401(k) plans

Of the companies in the survey offering 401(k) plans, more than half (56%) changed the mutual fund choices in their plan last year. Although most said the reason was a desire for better performance (35%) or broader diversification (27%), a smaller percentage (14%) said they wanted funds untouched by irregular trading.

“Even if the mutual fund scandals were not the main reason to change providers, their high public profile compelled many companies to take a closer look at their defined contribution plans,” said Colleen Cunningham, President and CEO of FEI. “In the end, this is likely to be a plus for plan participants.”

Favored Options Model

Regarding the FASB's recently issued final statement requiring the expensing of share-based payments, significantly one-third of the surveyed companies have not yet chosen a valuation model. Of those that have made a choice, 62% indicated that they will be using the Black Scholes model for valuing options, while 36% plan to use the binomial lattice model.

About the Survey

For full survey results, visit or contact

This quarter, the CFO Outlook Survey, conducted by Financial Executives International and Baruch College’s Zicklin School of Business, interviewed 235 corporate CFOs electronically in March. CFOs from both public and private companies and from a broad range of industries, revenues and geographic areas, including some off-shore companies, are represented. Survey respondents are members of Financial Executives International.

Revenue-weighted averages are provided for projected changes in capital and technology spending. Employee-weighted averages are used for projected changes in health care costs.

FEI has been conducting surveys gauging the country’s economic outlook from the perspective of corporate CFOs for the past eight years.

Financial Executives International (FEI) is the leading advocate for the views of corporate financial management. Its 15,000 members hold policy-making positions as chief financial officers, treasurers, and controllers. FEI enhances member professional development through peer networking, career planning services, conferences, publications, and special reports and research. Members participate in the activities of 86 chapters, 75 of which are in the United States and 11 in Canada. For more information about FEI, visit

Baruch College, founded in 1847, is a senior college of the City University of New York. The Zicklin School of Business at Baruch College is the largest collegiate school of business in the nation, producing graduates who assume leadership positions in all areas of American business as well as conduct important academic research. Baruch has one of the largest accounting programs in the country whose graduates become practicing CPAs.



Andrew Healy
Chris Allen

Burton Rothberg
Baruch College
Zicklin School of Business