Image: Deloitte

Three-quarters of CFOs view the current conditions of North America’s economy as good or very good, up from 29% in Q1 2021 and 1% a year ago, according to Deloitte’s newly released Q2 Signals survey of Fortune 500 CFOs. The survey took a comprehensive look at the CFO outlook, including their assessment of the economy and markets, performance expectations, and forward-looking strategy.

Compared to three months ago, 75% of CFOs are more optimistic about their company’s financial prospects, up from 67% in Q 1 2021, the report found. Further, CFOs have greater expectations for growth in revenue at 9.6%, earnings 13.6%, dividends 4%, capital spending 12.4%, and domestic hiring and wages/salaries 4.1% and 3.4%, respectively.

SEE: The CFO’s role in digital transformation: It’s not just about ROI (TechRepublic)

However, despite resounding optimism, this quarter CFOs indicated one potential roadblock: The ability to hire and retain quality talent in the current landscape. Economic stability and inflation were also cited as chief external risk concerns.

When asked what their perception is of the capital markets, 92% of CFOs said debt financing is attractive, just above the 91% who considered it attractive in Q1 21. The attractiveness of equity financing rose to 56% overall, slightly above the 55% who rated it as attractive in the prior quarter.

Another key finding from the Q2 Signals survey was that capital markets remain inflated: 86% of CFOs believe equities are overvalued, the highest reading in a decade.

Intense talent demands spark concerns: Recruiting and retaining talent in the current environment were the most widely cited risks for CFOs. Expectations for domestic hiring grew to the highest level in a decade and wage growth expectations ticked upward.

Primary drivers of digital transformation

A vast majority of CFOs indicated that transformation underway. Forty-two percent of CFOs reported serving as co-leader in these efforts while 15% said they are leading the effort.

CFO respondents cited changing customer demands (47%) and disruptive technologies (40%) as the top two catalysts for companies’ transformations. About one-fifth of CFOs (21%) cited investor demands for higher performance as a top-two driver, primarily in the telecom/media/entertainment, energy/resources, financial services and manufacturing sectors. Another 14% indicated competitor actions, 12% industry convergence and 7% the COVID-19 pandemic.

Nearly one-quarter (24%) reported other reasons, including the desire to scale, meet carbon emission reduction targets, address supply availability and be opportunistic. In one case, a change in leadership was the top-two driver for transformation, according to the report.

CFOs were also asked what new/expanded services and capabilities will finance have to provide from now on as a result of the transformation. CFO respondents said they were most likely to provide better support for decisions and operations. Twenty-four percent cited greater efficiency, and 16% better business knowledge.

This was a similar sentiment to what CFOs said in Q 1 2020, Deloitte said. Nearly three-quarters (72%) of CFOs said their finance teams need to provide stronger decision support, while 31% indicated better operations support. Nearly one-quarter of CFOs (24%) noted that finance is expected to be more efficient, and 16% said finance is being asked to provide better business knowledge, according to the report.

Internal risks CFOs are most worried about

CFOs cited a number of issues that concern them. They are talent and skills, execution and growth, returning to work, transformation and change management, operations and inefficiencies, company culture and capital and liquidity.

CFOs cited economic stability and inflation most frequently as their most worrisome external risk, followed by potential changes in government policies and the resurgence of COVID-19.

Measuring diversity, equity and inclusion efforts

Organizations’ approaches to diversity, equity and inclusion indicate significant work has been done to date, but there is room for improvement. Nearly three-fourths (72%) of CFOs noted that their companies have a formal DEI strategy. Forty-eight percent said their company reports out on DEI representation metrics to investors and other stakeholders, and half noted that DEI goals are linked to performance evaluations.

When asked, what is the one thing your company plans to do to make the greatest impact on advancing DEI, respondents cited improving their recruiting and hiring process, setting goals, metrics and reporting, investing in education, awareness and further training, developing a formal policy and plans for DEI/creating a DEI committee.

Respondent CFOs also said they will provide internal opportunities for identifying high-potential women and underrepresented minorities while focusing on identifying and mentoring candidates for the global leadership program.

A total of 138 CFOs participated in the survey: 70% from public companies and 30% from privately held companies, Deloitte said. Respondents are CFOs from the U.S., Canada, and Mexico, and the vast majority are from companies with more than $1 billion in annual revenue. The 2Q21 survey was open from May 3-14, 2021.