Cabell Smith

Fuqua School of Business

(919) 660-7722

Sean Woo

Financial Executives Institute

(202) 659-3700

FEI/Duke Survey Overview

Sampling Procedure

The survey questionnaire was faxed to 2,700 chief financial officers who are members of Financial Executives Institute. 677 responded, for a response rate of 25%. The survey was conducted between June 24 and June 28.

Index Construction for Individual Questions

Financial executives were asked to respond whether they believed that certain key factors would (1) increase, (2) decrease or (3) remain the same over the next quarter and over the next four quarters. We summarize the responses for each variable in an index, which simply assigns a value of +100 for all predicted increases, 0 for responses predicting no change and -100 for decreases. The index is the sum of these values divided by the number of respondents. Thus, an index of 100 means that all respondents felt that there would be an increase in the variable; an index of -100 indicates that all respondents expected a decrease in the variable; and a score of 0 means that there are as many responses of an increase as there are of a decrease or all responses were no change. Thus our indices measure direction as well as intensity or consensus.

Interpretation of Indexes for Individual Questions

We believe that an index greater than 50 or less than -50 indicates pervasive beliefs or general consensus of the direction of the variable in question.


A factor that consistently received a score of more than 50 was earnings. Out of 677 respondents, 496 or 73% believe that earnings will increase over the next quarter. 92 respondents (14%) believe that earnings will be lower next quarter and 83 (12%) believe that earnings will remain the same. These numbers yield an index of 60. The index on earnings is greater than 50 for all sizes of firms, ranging from under $24 million to over $5 billion, and for all industrial groups. The earnings index is also the highest for the next four quarters.

Capital Investment

The second highest index is for capital investment. The capital investment index is 52 for the next quarter and 55 for the next four quarters.

R&D Expenditures

The next highest index is for R&D expenditures.

Mergers and Acquisitions

The financial executives expect the M&A boom to continue. M&A activity for the first half of 1996 is $280 billion, which compares with $192 billion in the first half of 1995, which was the biggest year on record for M&A activity totaling $502 billion.

Long-Term Debt

Thus, financial executives expect higher earnings in the future and intend to reinvest these earnings in capital expenditures, R&D and M&A. There are also indications that some of these earnings will be used to retire long-term debt. The index on long-term debt is negative for the next quarter and the next four quarters (-5 and -2, respectively).


There are no indications that financial executives intend to use these higher earnings to increase dividends or buy back their shares. The dividend index for the next quarter is only 8 and the index for the next four quarters is only 19. The index on shares outstanding for the next quarter is 12 and it is 19 for the next four quarters.

Market Valuation

Perhaps the most surprising outcome of our survey is the number of financial executives who believe that the market is currently undervaluing their stock. Of the 627 executives who chose to respond to this question, 307 had stock listed. 152 believe the market isundervaluing their equity, 100 believe that the market is correctly valuing their equity and only 6 think that their equity is overvalued. Assigning a +100 to those who feel the market is over-valuing their stock, a -100 to those who feel the market is under-valuing their stock and a 0 to those who feel that their stock is correctly valued in the market place yields a valuation index of -92.14.

Next Quarter vs. Next Year

The expectation for the next four quarters is a simple extrapolation of the expectations over the next quarter. The rank correlation between the eight indices for the next quarter and those for the next four quarters is 0.98

FEI/Duke Strength Indices

We compile three composite indices.

Accessing Survey Information

Detailed analysis of the results is contained on the internet at:


Each question's responses are broken down into categories according to: firm size by revenues, number of employees, industry, ownership, foreign market exposure and headquarters' location.

This site also contains information on the special questions regarding growth and inflation forecasts.

About FEI

FEI is a leading advocate for the views of corporate financial management. Its 14,000 members hold policy making position as chief financial officers, treasurers, and controllers at 8,000 companies throughout the U.S. and Canada.

About The Fuqua School of Business

The Fuqua School of Business at Duke University, founded in 1970, is recognized world-wide as a leading center of management education and research.

Background Economic Information

Real GDP Growth in 1994= 3.52%

Real GDP Growth in 1995= 1.27%

Real GDP Growth in First Quarter of 1996= 2.15% (Annual Rate)

Inflation (CPI) in 1994= 2.67%

Inflation in 1995= 2.60%

Inflation (CPI) in First Five Months= 4.1% (Annual Rate)