War Uncertainty Shades CFOs' Revenue Predictions

For Chief Financial Officers of U.S. companies, a short successful war will mean positive revenue growth over the next year according to the March "CFO Outlook Survey," conducted this week by Financial Executives International (FEI) and Duke University's Fuqua School of Business. However, a prolonged war with Iraq would cause revenues to remain flat for the coming 12 months. If Iraq retaliates with weapons of mass destruction or new large-scale domestic terrorism, revenues would fall sharply, according to the CFOs.

The Sooner, The Better

If the war ends quickly with a minimum of casualties, CFOs say revenues will increase 8% over the next 12 months. If the conflict continues for more than six months, the financial executives say that revenues would remain flat. And if Iraq retaliates with weapons of mass destruction against U.S. troops or with domestic terrorism, revenues will decrease by 8%. In this final scenario, 76% of respondents believe that revenues will either be flat or decrease.

"It is important to keep these numbers in historical perspective," says Professor Campbell R. Harvey of Duke University. "During the last five recessions, sales revenues actually increased. It is very likely that the long war scenario, with zero sales growth, will push us back into recession." As for the response to the possibility of strong retaliation by Iraq, Dr. Harvey remarks, "We haven't seen negative eight percent sales growth in the last forty years. This magnitude of reduction in sales revenue could quite possibly lead to a severe economic contraction."

Geopolitical Woes Put Capital Spending on Hold

Corporations are deferring capital projects because of war-related uncertainty. In the survey, 67% of CFOs say they are spending cautiously or holding off all capital investment. "This is a major factor in keeping the economy in limbo. Without more robust capital spending, it is unlikely we will see growth in non-farm payrolls," says Dr. Harvey.

Optimism Suffering

Polled on the eve of war, the CFOs were less optimistic about the prospects for the U.S. economy or their own individual company's financial prospects than they were last quarter or the quarter before when their optimism was first gauged. In the current survey, a record 45% are less optimistic about the economy, compared to 15% last quarter. Forty percent, another high, are less optimistic about their own company, up from 23% last quarter.

You may like these other stories...

Cybersecurity is no longer the domain of an organization's IT staff. It's moved to the boardroom, and in a big way. Accountants and financial managers may have been thinking it's just the province of the tech...
Boehner addresses GOP priorities ahead of midterm electionsHouse Speaker John Boehner (R-OH) on Thursday delivered what amounted to closing arguments ahead of the November elections, laying out a list of Republican...
Former DOJ Tax Division head Kathryn Keneally joining DLA Piper in New YorkGlobal law firm DLA Piper announced on Thursday that Kathryn Keneally, the former head of the US Justice Department Tax Division, is joining the firm...

Already a member? log in here.

Upcoming CPE Webinars

Sep 24
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.
Sep 30
This webcast will include discussions of important issues in SSARS No. 19 and the current status of proposed changes by the Accounting and Review Services Committee in these statements.
Oct 21
Kristen Rampe will share how to speak and write more effectively by understanding your own and your audience's communication style.
Oct 23
Amber Setter will show the value of leadership assessments as tools for individual and organizational leadership development initiatives.