Companies Lack Confidence in own Cost of Capital Calculations
The methods that financial professionals typically use to assess the future performance of their organisation’s strategic investments are critical to future success, says the Association for Financial Professionals (AFP) in its new report, entitled ‘Current Trends in Estimating and Applying the Cost of Capital’.
The report enables companies to compare techniques against those of their peers and is based on a 35-question survey that the AFP issued in July to senior level corporate practitioner members and prospects with job titles including chief financial officer (CFO), treasurer and director of finance.
The survey generated 424 responses from both public and private organisations spanning a wide range of industries, with the largest concentration in the manufacturing industry.
“Decisions about strategic investments can define the future of the company. Yet very few companies are confident that their cost of capital estimates are accurate,” said Jim Kaitz, AFP’s president and chief executive officer (CEO). “We believe that achieving standards in financial planning and analysis for professional staff, and understanding the tools and practices that successful companies use will be critical to corporate decision making in the future.”
The report, part of AFP’s ongoing benchmarking and standard-setting in the field of corporate financial planning and analysis, updates a comprehensive study originally launched in 2010.
Among the findings in the 2013 report:
The report can be downloaded here.