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To better understand how businesses are addressing market changes — and how they should adapt their capital allocation strategies going forward — EY teams surveyed 1,050 CFOs around the world and across industries in the first weeks of 2021. Findings include:
- Over half (56%) of CFOs say their capital allocation strategy needs to be completely rethought.
- Four in five CFOs say their capital allocation process needs to be improved.
- About two-thirds were unable to fund all planned projects in 2020, which could have consequences going forward, especially as the pace of transformation quickens.
- Only 47% say their capital allocation process effectively meets total shareholder return (TSR) goals.
The lack of confidence in their capital allocation strategy, combined with the shortage of capital to fund all projects, underscores the need for companies to refocus their portfolios on their core business, carefully choose which initiatives to fund and address potentially long-term changes to their market.
Companies’ next steps will vary depending on the pandemic’s impact. Some industries such as transportation and restaurants have seen their entire business model upended. They urgently need to improve elements of their capital allocation process. Others, such as technology and life sciences, have seen increased demand and a financial windfall. Still, they should not let that mask long-term changes that need to be made lest they fall behind in the future.
CFOs and their companies must:
- Define their future and investment road map
- Use the capital allocation process to drive business agility
- Focus on the right metrics in the post-pandemic era