Halfway through the first quarter of 2016, many finance leaders find themselves reexamining what the year might hold for the business. Stiffening credit standards mean even long-planned capex projects are coming under closer scrutiny, as securing the necessary funds becomes both more expensive and more elusive. But while corporate credit got tighter, elsewhere the week brought a welcome sense of slackening: Global risk appetite show signs of rebound, and the White House launched plans to further thaw relationships between the Cuban government and U.S. corporations.
4 need-to-know headlines
1. Corporate credit feels the squeeze
If your company is finding it harder and pricier to raise the capital needed to grow, you’re not alone. What finance leaders call the financing gap—the difference between capital expenditures and internally generated funds, including profits—has been positive for the longest streak since 2008. At the same time, banks are stiffening lending standards on business loans and investors are clamoring for higher yields on some corporate debts. In response, many businesses are shelving capex projects. (via Bloomberg.com)
2. SEC puts program accounting under scrutiny
Fans of program accounting, take note! The Securities and Exchange Commission is now reportedly probing the financial projections of Boeing, based on this type of accounting. The method has allowed the airline giant to declare its 787 Dreamliner program profitable, even though the cost to manufacture each jet still outpaces its sale price. That’s because program accounting, which is considered GAAP compliant, allows a business to book future profits and cost-cutting expectations in current earnings. (via Nasdaq.com)
3. Performance reviews are dead; long live performance reviews!
We’ll forgive any finance department leader who can’t keep the news straight: While the BBC and the Financial Times recently heralded the end of the annual review, reports show that most companies are actually just evolving the process. Want to implement modern reviews across the finance team? Four changes are trending at companies big and small, across all sectors: Annual reviews are being replaced by quarterly or monthly reviews, pay reviews and performance reviews are being held separately, bosses are putting the focus less on past performance and more on future goals—and the tradition of firing team mates with the lowest scores is being phased out. (via the Economist)
4. Risk appetite returns
Following weeks of global turmoil and widespread financial anxiety, it seems that risk appetite is slowly rebounding. Gains by equities and rising oil prices seemed to spark investor appetite for riskier assets this week. On Thursday, Southern European bonds across the euro zone led declines in yields, which is strongly correlated to a higher risk. And in emerging markets, that appetite for risk seems to be growing as well. The Bank of Indonesia cut its main policy rates another quarter percentage point Thursday—the second cut so far this year. (via Reuters and WSJ.com, for registered users)
The stat: 46%
That’s the percentage of public actions against U.S. public companies that were board-related, according to research firm Activist Insight. Board tenure and lack of diversity are two main sticking points that have prompted activist shareholders to take action, writes the leader of PwC’s Center for Board Governance. But the main factors that can spark hostile activism remain criticism of company strategies and performance. (via CFO.com)
Sound bite of the week
“We need help from the Cuban side. The U.S. companies that are attempting to do business in your country continue to face challenges.” —Penny Pritzker, U.S. commerce secretary, during talks aimed at opening the Cuban economy to U.S. businesses. It was also announced that President Obama will travel to Cuba within weeks—the first such visit in more than half a century. (via the New York Times)
4 Top Stories + 1 Key Statistic + 1 Industry Quote = The CFO 411
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