Each quarter, Deloitte’s CFO Signals tracks the thinking and actions of leading CFOs representing some of 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’ priorities. Participating CFOs represent diversified, large companies, with 81% of respondents reporting revenue in excess of $1 billion. Just under one-quarter (23%) are from companies with greater than $10 billion in annual revenue.
In the latest CFO Signals survey for Q2 of 2023, CFO sentiment toward current conditions rose in four of the five economic regions covered in the survey. The exception is North America, where 34% of CFOs rated the current economy as good or very good, decreasing from 40% in Q1.
However, across all five economic regions, CFOs are pessimistic about economic conditions improving in a year. The proportion of CFOs who indicated conditions in North America will improve in a year dropped to 34% from last quarter’s 54%. Just 15% of CFOs expect the European economy to improve in a year, down from last quarter’s 32%. Thirty percent of CFOs said they anticipate improving conditions in China, down from 41% in 1Q23. Better conditions a year out for the Asian economy, excluding China, fell to 27% from last quarter’s 32%. CFOs’ expectations for the South American economy to improve in a year dropped to 7% from 17%.
OWN COMPANY OPTIMISM AND RISK
The proportion of CFOs expressing pessimism for their companies’ financial prospects increased to 24% from 19% in the prior quarter, while those expressing optimism fell to 30% from 32%. As a result, CFOs’ net optimism slid to +6 from +13. The proportion of CFOs saying now is a good time to take greater risks fell to 33% from 1Q23’s 40% and remains below the two-year average of 43%.
KEY OPERATING METRICS
CFOs lowered their year-over-year growth expectations for earnings, domestic hiring, and domestic wages while raising growth expectations for revenue, dividends, and capital investment. Earnings growth expectations decreased to 4.4% from 5.4%, growth expectations for domestic hiring declined to 1.4% from 2.3%, and growth expectations for domestic wages/ salaries dropped to 3.8% from 4.3% last quarter. CFOs increased their expectations for revenue to 4.9% from 4.4%, dividends to 2.9% from 2.4%, and capital investment to 6.6% from 5.7%.
WHERE CEOS WANT THEIR CFOS TO FOCUS
In today’s business environment, slightly more than half of the surveyed CFOs reported that their CEOs are asking them to focus on cost reduction. More than one-third of CFOs said their CEOs want them focused on strategy/ transformation, performance management, revenue growth, investment, and capital/financing. More than one-quarter of CFOs noted that their CEOs are asking them to focus on working capital efficiency and risk management.
ENTERPRISE RISK AND REGULATION
After nine consecutive quarters of concerns about talent and labor topping their list of internal concerns, CFOs indicated execution risks to strategies and transformations as their more worrisome internal risk (81%). Talent followed closely behind as the second most worrisome internal risk at 80%.
More than three-quarters (81%) of CFOs ranked economic/financial market risks as their organizations’ top external risk. Geopolitical risk (57%) followed, despite consistently topping CFOs’ list of external concerns in several previous surveys.
Overall, 52% of CFOs indicated that they are satisfied with their companies’ ability to identify external risks promptly, compared with 66% who said they are satisfied with their ability to identify internal risks. Both sets of results suggest that there could be room for improvement.
ASSESSMENT OF CAPITAL MARKETS
Forty percent of CFOs indicated that US equities were neither overvalued nor undervalued, while 21% viewed them as undervalued — up slightly from last quarter’s 14%. This quarter, the proportion of CFOs regarding US equities as overvalued increased to 39% from 36%. Sixteen percent of CFOs found debt financing attractive this quarter, up slightly from 15% in 1Q23. Meanwhile, a higher proportion of CFOs found equity financing attractive at 24%, compared to 16 in the prior quarter.
“CFOs cite changing and increasing regulations among the biggest challenges in managing enterprise risk and regulatory compliance, with ESG accounting and disclosure requirements being of most interest to their organizations due to the impact on their ability to comply or other factors,” said Amy Kroll, principal, corporate compliance and operations offering leader, Deloitte & Touche LLP. “At the same time, they indicate that they are generally satisfied with their organization’s ability to identify internal and external risks in a timely manner.”
Learn more at deloitte.com.
