Financial executives across most sectors believe economic recovery is imminent early in 2010, but bankers are less optimistic, a recent study by the Canadian Financial Executives Research Foundation reveals.
In the survey of more than 200 senior financial executives by the research institute of FEI Canada, many indicated that they expect corporate revenues to either grow or remain unchanged in 2009. This suggests that the downward trend on earnings could recover early in the new year.
More than half of respondents expect an economic recovery in 2010, while 30% expect a 2011 recovery.
Executives in the finance and insurance sector are significantly less optimistic. Only one-third of survey respondents in the industry expect a recovery in 2010, compared to two-thirds or respondents in the hard-hit manufacturing sector.
“We expect Canada will experience uneven recovery and growth across the country,” said Ramona Dzinkowski, executive director of the Canadian Financial Executives Research Foundation. “Some sectors have been fairly recession proof, and companies that were able to manage their cash positions effectively will be better poised for recovery as they are now able to acquire assets at fire sale prices.”
Dzinkowski noted that other sectors will face a slower recovery.
“Companies that are cash poor, or have been deeply affected by a slowdown in consumer demand, may have to wait to experience economic recovery until 2011 and beyond,” she said.
The study shows that liquidity and cash management have become the two top financial management issues for executives. Three-quarters of respondents indicated that they are more focused on cash management issues now than they were at the same time last year.
“Canadian companies need to ensure they’re adequately capitalized to carry out their plans for growth,” said Steve Lewis, partner at Ernst & Young, which sponsored the study. “Many respondents said they are focusing on acquiring new customers, making strategic acquisitions and exploring non-traditional markets. With a solid balance sheet, they’ll be able to move on competitive opportunities like these.”
Companies that are having trouble accessing cash from traditional sources are turning to asset-backed loans, equity financing and subordinated debt, according to the study. Most companies will be scaling back costs over the next 12 months in order to better manage their cash position, with the most popular methods including a freeze on executive compensation and deferring capital investments.
Most companies do not expect improvements in cash flow until 2010.
In the uncertain environment, the role of the chief financial officer has changed. The study finds that finance functions have refocused both time and resources into stress testing their positions, in different ways, and much more frequently. In addition, internal control and risk management remains a priority.
“The recent economic cycle has again put new demands on the job of the CFO,” the study says.
IE
Finance officers predict economic recovery early in 2010: study
Execs in the finance and insurance sector are significantly less optimistic
- By: Megan Harman
- June 17, 2009 June 17, 2009
- 10:05