Capital Spending: Companies demand a fast payback
Feb. 9, 2011
by Dan Malovany
When it comes to return on investment (ROI), the magic number for more and more baking and snack companies is now one year or less, according to Baking & Snack
’s 18th Annual Capital Spending Survey. The shift in sentiment seems to signify a continued trend toward making more targeted, strategic investments that provide a quicker bang for the buck.
“As an indication that companies continue to closely monitor the expected return on their capital investment budgets, 44% of executives indicated that they use a 1-year ROI cycle for major capital planning,” said Marjorie Troxel Hellmer, president of Cypress Research Associates, Kansas City, MO, which conducted the survey. “In 2007, prior to the economic recession, only 28% of companies reported a 1-year ROI cycle for their major capital investments.”
At the same time, investing for the long term remains part of the equation for many companies. The survey indicated 46% of respondents noting they have an ROI cycle of three years or more when it comes to capital spending.
The general trend toward a shorter 1-year-or-less ROI also reflects that many cautiously optimistic bakers and snack manufacturers have adopted a short-term strategy toward capital expenditures partly because there is still some uncertainty about the future, according to Ms. Troxel Hellmer.
Looking to 2012, 18% of executives plan to invest more than in 2011, 32% predict they will spend the same and 20% expect to lower their capital expenditures.
However, a significant number (30%) is simply “not sure” about what they will budget for 2012. Obviously, the crystal ball for next year remains a bit hazy at this time. Download the charts from the survey (includes extras not featured in print)Read more on the subject: Capital Spending On the Rebound Seizing the Moment