Despite the promising recovery of the US economy, the robust performance of the US stock market and other positive factors, chief financial officers are still worried. Almost half of respondents in a just released Deloitte survey say “external financial and economic risks are higher than normal,” with 61 percent thinking that US markets are “overvalued.” Still many CFOs expressed optimism about the coming year.
The top risk worries for CFOs include global economic growth, although respondents are less worried about the US; interest rates and FX, particularly as it concerns the US dollar; geopolitical events, with the Ukraine crisis and the Middle East the major concerns; competition, such as “irrational competitor behavior, poor margins, industry headwinds, and pricing pressures,” although these fears weren’t as strong in earlier surveys. CFOs also are worried about execution, ranging from staying on point when it comes to strategies “to managing operating risks to being second-guessed by activist investors;” policy and regulation were also a concern, with CFOs worried about “heavy handedness” and compliance costs. Although these worries declined in the latest survey, concerns about tax reform continued to rise. Finally, CFOs remain worried about cyber security.
Still, these risks aren’t preventing companies from taking advantage of continued low rates, dipping their buckets into the debt financing well. As has been the case over the last several years, CFOs say debt is a good option for financing. In Deloitte’s survey, “What North America’s top finance executives are thinking – and doing,” a majority 88 percent say debt is currently “an attractive financing option, with 48 percent of public company CFOs seeing equity financing favorably – this, notes Deloitte, is up sharply from 30 percent in a previous survey.
In 2015, CFOs will also continue to keep a bias toward revenue over cost. According to the Deloitte survey, “there is still a significant bias toward growing revenue over reducing costs, but sector differences became more notable this quarter.” Close to 54 percent of CFOs say they are partial to revenue growth, while 25 percent claim a focus on cost reduction. This might bode well for treasurers looking to bolster their ranks. Deloitte says financial services and manufacturing are the most growth-oriented while the energy/resources sector is lowest at just 23 percent.
Overall, CFOs were bullish on 2015, Deloitte says. “Views of North America are again strongest, with a very high 63 percent of CFOs describing conditions as good (up from 44 percent last quarter), and the same proportion expecting better conditions in a year (up from 55 percent last quarter). Thirty four percent regard China’s economy as good (up from 27 percent last quarter), and 25 percent expect improvement (down from 29 percent last quarter).” Very few see Europe improving in 2015.
CFOs also are also more interested in investing cash vs. returning it to shareholders (43 percent vs. 26 percent), although it again depends on the sector. Retailers want to invest cash while tech companies want to give cash back to shareholders.
Deloitte received responses from 102 CFOs during the two-week period ending November 21. Seventy-two percent of respondents were public companies, and 82 percent were companies with more than $1B in annual revenue. You can see the full survey here.