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Friday, Dec 9, 2022

CFOs Raise Expectations for Growth Across Key Metrics

Each quarter, CFO Signals tracks the thinking and actions of leading CFOs representing North America’s largest and most influential companies. Since 2010, the survey has provided key insights into the business environment, company priorities and expectations, finance priorities and CFOs’ personal priorities. Participating CFOs represent diversified, large companies, with the vast majority reporting revenue in excess of $1 billion. More than a quarter are from companies with greater than $10 billion in revenue.

The second quarter survey for 2021 showed a spike in optimism among CFOs. Highlights of the survey included:
• Three-quarters of CFOs view the current conditions of North America’s economy as good or very good, up from 29% in the first quarter of 2021.
• Seventy-five percent of CFOs are more optimistic about their companies’ financial prospects than three months ago.
• Eighty-six percent of CFOs believe equities are overvalued, the highest reading in a decade.
• Threats to economic stability, including inflation, are CFOs’ most-often cited external risk.
• Recruiting and retaining talent is the most widely cited internal risk for CFOs, followed by growth and execution.
• CFO expectations for domestic hiring grew to the highest level in a decade, and wage growth expectations ticked upward.
• Seventy-two percent of CFOs indicated their companies have a formal DEI strategy; 60% said their companies have or plan to have a defined budget for DEI in the next year.
• Changing customer demands (47%) and disruptive technologies (40%) are the top-two drivers of transformation, while technology/systems upgrades (40%) and strategy/model/offerings (35%) are the two leading types.

The proportion of CFOs rating the current North American economy as good or very good increased significantly from 29% in the first quarter of 2021 to 75%. Only 3% rated it as bad, down from 13% in the first quarter of 2021. The percentage of CFOs expecting better conditions in a year, however, dipped from 73% in the first quarter of 2021 to 62% in this quarter. Assessments of Europe’s current and future economies improved to 19% and 46%, respectively. More than half (62%) of CFOs rated China’s current economy as good, up from 57% in the first quarter of 2021, but the percentage of those expecting better conditions in a year (53%) fell from 64% in the previous survey.

Eighty-six percent of CFOs participating in this quarter’s survey regarded the U.S. equity markets as overvalued, up from 83% in the first quarter of 2021, and also a survey high from the second quarter of 2010. Only 2% of respondents view U.S. equities as undervalued. Ninety-two percent of CFOs say debt financing is attractive, just above the 91% who considered it attractive in the first quarter of 2021.

Compared to three months ago, more than half of CFOs (59%) feel somewhat more optimistic about their company’s financial prospects, and 16% are significantly more optimistic — both upticks from the first quarter of 2021. Only 5% are somewhat less optimistic, while the remainder see their companies’ financial prospects as broadly unchanged.

CFOs’ year-over-year growth expectations rose across the board from last quarter: Revenue growth expectations increased from 8.5% in the first quarter of 2021 to 9.6%. Earnings growth expectations jumped from 12.8% in the first quarter of 2021 to 13.6%. Capital spending growth saw improvement, from 10.2% in the first quarter of 2021 to 12.4%. Dividend growth inched up from 3.3% in the first quarter of 2021 to 4%. Domestic hiring rose from 2.7% in the first quarter of 2021 to 4.1%. Domestic wages/salaries increased from 3.1% in the first quarter of 2021 to 3.4%.

“After more than a year of unprecedented challenges, the 2Q21 survey found that economic sentiment is shifting among CFOs and levels of optimism toward the North American economy are rising,” said Joe Ucuzoglu, chief executive officer, Deloitte US. “As we move toward a post-pandemic world, companies are intensely focused on continuing to accelerate their digital transformations as well as optimizing the talent experience for their people with new workplace models.”

For more information about Deloitte CFO Signals, or to inquire about participating in the survey, please contact NACFOSurvey@deloitte.com.

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