Amid a comeback of confidence, growth finally returns to the CFO agenda: EY survey
New York, 13 January 2014
More CFOs are focused on growing their companies than at any other time during the past two years.
Fifty-five percent of finance executives say their companies are focused on growth, according to the CFO Capital Confidence Barometer results released by EY, a leader in assurance, tax, transaction, advisory services and strategic growth markets. This is the highest figure since October 2011, when 61 percent were intent on growing.
Moreover, 60 percent of chief financial officers (CFOs) believe that the global economy is improving, which is a significant increase from 26 percent just one year ago. This renewed focus on growth is driven by an uptick in their confidence in the global economy.
“CFOs are clearly displaying guarded optimism,” said Tom McGrath, the EY Americas Senior Vice Chair – Accounts. “The price of growth is increased risk and it will fall on the shoulders of the CFO to balance this risk with the potential value these decisions can create over time.”
The report noted that CFOs’ views of important economic indicators are also on the rise. Some of the most significant improvements are seen in economic growth, credit access and employment. The number of finance executives who are optimistic about economic growth has more than doubled to 63 percent from 30 percent over the past year.
This comeback of confidence is encouraging CFOs said McGrath, to refinance their obligations, pay down debt and look to engage in strategic dealmaking. However, CFOs and their organizations, are taking a disciplined approach to growth. Caution seems to dominate the boardroom agenda, with a high emphasis on risk management and efficiency/cost control.
Optimism Around Deal Flow
One of the reasons CFOs appear more optimistic about the future is their sense that credit is more widely available today. This trend gives CFOs more options for financing deals. Sixty-seven percent of CFOs expect improvement in global deal volume over the next year, with acquisition appetites rising. However, CFOs are playing it safe, with 61 percent looking to gain share in existing markets versus 54 percent considering new geographies or product sectors. The regulatory environment remains a barrier and has been the primary reason cited by 35 percent of CFOs for not pursuing transactions.
For the near term, CFOs who identified themselves as having comparatively lower risk tolerance among their peers are forgoing investments in new products, services or R&D in favor of seeking share gains in existing products and markets. As time goes on, this will likely prove difficult to sustain. The long-term ramifications of reduced R&D outlays, combined with dampened transaction activity, may be cause for concern if this trend continues.
“This begs the question, are CFOs being assertive enough?” said McGrath. “Despite a mood of relative confidence, CFOs and their counterparts rank expansion into new markets, inorganic growth and growth via innovation very low on the boardroom agenda.”
The Aggressive CFO
Just 44 percent of CFOs say that they plan to invest capital over the next year, and only 45 percent say they will be using excess cash to fund growth. The deals that CFOs plan to make appear to be on the safer side, adding only incremental value. CFOs must not overlook the potential for strategic moves into fast-growing, stable economies. Those CFOs who can work collaboratively with company leadership to identify and pursue opportunities for long-term growth will prime their companies for a strong future.
The CFO Capital Confidence Barometer is a regular survey of finance executives from large companies around the world conducted by the Economist Intelligence Unit (EIU). It measures finance executives’ confidence in the economic outlook and identifies boardroom issues and practices in the way organizations manage their Capital Agendas – EY’s framework for strategically managing capital.
To see a related infographic about EY’s CFO Capital Confidence Barometer, please click here.
EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.
EY refers to the global organization, and may refer to one or more of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit www.ey.com.
This news release has been issued by Ernst & Young LLP, a member of the global EY organization that provides services to clients in the US.