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CFOs' sentiment and expectations rebound in Q2

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"This quarter, our survey shows CFOs' sentiment rebounded significantly after a rapid and decisive downturn in equity markets last quarter likely weighed on their thinking. Since then, the equity markets have recovered, and CFOs seem to have responded in kind," said Sanford Cockrell III, national managing partner of the U.S. CFO Program, Deloitte LLP. "However, it's also important to note that all four business outlook measures are down when compared with long-term survey averages, which could indicate potential substantial headwinds for some companies such as the potential effects of oil and commodity prices, as well as concern over a US economic pullback."

Each quarter, CFOs are asked which risks they regard as most worrisome. This quarter, the top five external risks cited were: 1) oil/commodity prices, 2) U.S. economy pullback, 3) new/burdensome regulation, 4) the upcoming election/political uncertainty in the US, and 5) global growth/recession/volatility and capital markets liquidity/stability (tied for fifth place). In line with these concerns, assessments of the North American economy are only slightly better than they were last quarter, with 40% of CFOs describing it as good or very good compared with 41% last quarter. CFO confidence in Europe remains weak, with only 6% of CFOs describing that economy as good compared with 5% last quarter, and perceptions of China's economy remain pessimistic — only 9% describe it as good or very good, the same as the last quarter. Also like last quarter, the top internal risks are talent-related: retaining key employees and securing qualified talent.  

Likely in response to US equity markets bouncing back strongly between the first and second quarters, 56% of CFOs once again regard US equity markets as overvalued, up from just 30% last quarter. Eighty percent of CFOs say debt is currently an attractive financing option, up from 68% last quarter and back in line with levels from late 2015, and 30% of public company CFOs say equity financing is attractive (up from 22% last quarter). In terms of business focus, nearly 60 percent of surveyed CFOs say they are biased toward revenue growth, the highest level in more than a year, and 53% have a strong bias toward investing cash over returning it to shareholders.

"Last quarter, CFOs voiced very strong concerns about the impact of volatile equity markets and unfavorable economic news on financial market liquidity and customer demand," said Greg Dickinson, director, Deloitte LLP, who leads the North American survey. "While it is encouraging that CFOs' sentiment regarding their companies' prospects rose sharply this quarter, it is important to note that the survey's net optimism measure is relative and not absolute — meaning that sentiment is a lot better than it was last quarter, but is not necessarily good compared to longer time frames."

 

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