CFO Signals™ 4Q 2023

Key takeaways from the survey

1. A mixed forecast for regional economies. CFOs’ 12-month outlook for economic conditions in North America, Europe, China, and other regions of Asia declined, but it improved for South America. In addition, CFOs’ views of their own companies’ financial prospects fell significantly from the prior quarter’s survey. That might explain CFOs’ increased aversion to risk in the fourth-quarter survey compared to 3Q23.
2. Some obstacles for financial performance heading into 2024. CFOs cited interest rates, inflation, and their impact on liquidity as factors that could most constrain their organizations’ financial performance in the year ahead. Macroeconomics and geopolitics followed as other major hurdles to future financial performance. CFOs also cited a slowdown in consumer demand and labor markets/talent as possible constraints, as well as higher costs for talent/labor and oil/fuel, which they expect.
3. Lower year-over-year (YOY) expectations for growth overall. CFOs expressed lower expectations for YOY growth in revenue, earnings, capital investment, dividends, and domestic hiring. The exception: domestic wages and salaries are expected to increase.
4. Strong focus on digital transformation, automation, and technologies. More than three-quarters of CFOs expect digital transformation and technologies to play a greater role in achieving their companies’ strategy. Furthermore, 80% of CFOs expect their companies to embed more automation/digital technologies into their operations in 2024, and 81% plan to use those to free people’s talents for higher-value activities.
5. Cybersecurity a top priority for audit committees. Seventy-six percent of CFOs said cybersecurity will be a top priority for their companies’ audit committees in 2024, followed by enterprise risk management and finance and internal audit.

For a more detailed look at this quarter’s results, download the report.

CFOs’ views of regional economies and capital markets

CFOs notched down their assessments of current economic conditions in North America, Europe, China, and South America this quarter, compared to 3Q23, while raising them for Asia, excluding China. Looking 12 months out, they also lowered their assessments of economic conditions in all regions, except South America, compared to the prior quarter. Factors causing the downward shift in CFOs’ views of North America could include continued high interest rates and the impact of geopolitical events.

In the 4Q23 survey, more than one-third of the CFOs surveyed (35%) say they believe that US equity markets are overvalued, a considerable decline from the 56% of CFOs who held this opinion in 3Q23. A higher proportion (23%) of CFOs consider US equity markets as undervalued compared to the 3Q23 survey, when 9% of CFOs held that view.

Growth expectations and risk appetite

Of the six metrics CFO Signals tracks, domestic wages/salaries is the only one for which CFOs raised their expectations for YOY growth, inching up slightly to 3.8% from 3.6% in the prior quarter. For the other metrics―revenue, earnings, dividends, capital investment, and domestic hiring―CFOs expect lower year-over-year growth, compared to 3Q23, as depicted in the chart below. Earnings reflected the largest drop in CFOs’ expectations for YOY growth, declining to 6.8% in the 4Q23 survey from 8.3% in the prior quarter.

CFOs’ falling expectations for five of the six key metrics may reflect their dimmer assessments of the 12-month economic outlook in North America, Europe, China, and other parts of Asia.

The proportion of CFOs saying now is a good time to be taking greater risks stands at 38% in this quarter’s survey, down from 41% in the 3Q23 survey and flat with the two-year average. This group is heavily outweighed by the 62% of CFOs who say now is not a good time to take greater risks. That’s an increase from 59% in the prior quarter’s survey. The decline could be influenced by what CFOs consider to be potential constraints on their companies’ ability to achieve their financial performance goals in 2024. 

Priorities and constraints

Looking toward 2024, surveyed CFOs say that their companies’ top three priorities will be financial performance (53% of CFOs), growth (43%), and cost management (36%). Capital allocation follows closely behind, chosen by 34% of CFOs. More than one-fifth of surveyed CFOs report strategy setting and execution, plus cash management, as priorities for the new year. Data analytics, AI, and business intelligence will be a priority for 18% of CFOs for 2024, as will transformation initiatives.

More than three-quarters of surveyed CFOs say cybersecurity will be a top three priority for the audit committee in the next 12 months, beyond financial reporting and internal controls. CFOs also expect the audit committee to be focused on enterprise risk management, indicated by 43% of CFOs, along with finance and internal audit (40% of CFOs).

More than one-third of CFOs (38%) expect compliance with laws and regulations to be an audit committee priority, while 24% of CFOs indicate finance transformation will be a priority for the audit committee. With many companies exploring or adopting artificial intelligence (AI), nearly one-quarter of CFOs also expect the audit committee to have AI governance as a priority in the next 12 months.

Surveyed CFOs most frequently cite inflation, interest rates, and liquidity impact as factors that could most constrain their companies’ ability to achieve their financial performance goals in 2024. Macroeconomics and geopolitics were named next most frequently. CFOs also mentioned a slowdown in market/consumer demand and labor markets/talent as additional factors that could most constrain their companies’ ability to meet financial performance goals in the next 12 months.

Special topic: 2024 plans and expectations

With respect to company strategy and growth, 76% of surveyed CFOs expect digital transformation and technologies to play a greater role in 2024. Nearly half (48%) say they will Increase their focus on new markets inside North America, compared to 30% indicating their focus will be on new markets outside the region. Thirty-eight percent of CFOs indicate their organization will focus more on improving their cost structure than on growing revenue, and the same proportion indicate the opposite.

Amid ongoing inflation, half of CFOs expect their companies to raise their prices for a substantial portion of their products/services to offset it. Slightly more than one-third of CFOs say M&A will be a substantial portion of their growth strategy in 2024, while 46% indicate it will not.

Regarding capital, 67% of surveyed CFOs indicate they will allocate/reallocate capital to new business investments. Some might find that result interesting in light of the 62% of CFOs who say now is not a good time to take on greater risks. Forty-two percent of CFOs say their organizations expect to reduce their cost of capital, while 35% expect to take on new debt and 23% expect to repurchase/pay down a significant proportion of their bonds/debt.

About the same proportion of CFOs (40%) say their companies will repurchase shares as those who say they will not (41%). More than one-fifth of CFOs (22%) indicate their organizations will increase their investment in ESG initiatives. In contrast, 42% of CFOs expect their organizations will not.

In 2024, 80% of CFOs expect their organizations to embed more automation/digital technologies into their operations. Meanwhile, 65% indicate their organizations will deploy digital technologies to automate certain jobs previously performed by humans, and 81% say their organizations will use automation/digital technologies to free people to use their talents for higher-value activities. Only 9% of CFOs expect their companies to increase their use of digital currencies for transacting business.

Sixty-five percent of CFOs expect their companies to offer a hybrid work arrangement in 2024, and 35% say their organizations will increase outsourcing of operations. Forty-two percent of CFOs say their organizations will hire more people than they let go, while 33% of CFOs indicate the opposite.

Half of surveyed CFOs expect their organizations’ health care costs to increase substantially in the new year, with 44% expecting the same for labor/talent costs. Regarding inflation, 26% of CFOs expect it will affect their costs to the same degree as in 2023, compared to 60% who say it will not. Just 16% of CFOs expect materials and supply chain costs each to increase substantially in 2024. Meanwhile, 28% of CFOs think oil/fuel prices will increase beyond 2023 levels, compared to 18% who expect they will not.

With respect to demand, just over half (52%) of CFOs do not expect consumer spending to increase in 2024, while 50% and 47% say the same for individual and business investment, respectively.

Special topic: M&A

More than half of surveyed CFOs say that their top M&A strategy is increasing competitive positioning and/or capturing sector and marketing leadership. Slightly more than one-third (34%) of CFOs say that strengthening a core business or raising capital via divestiture or alternatives best describes their top M&A strategy.

For more than one-quarter of CFOs, broadening their organizations’ operating model, accelerating long-term transformation to new business models, and acquiring/expanding critical technological assets best describe their top M&A strategies.

Slightly more than one-third (34%) of surveyed CFOs expect their companies to increase the average number of deals they close over the next 12 months. A smaller proportion―13% of CFOs―expect the average number of deals their companies will close to decrease over the next 12 months. Nearly half of surveyed CFOs do not expect any change in the average number of deals closed.

As far as how much surveyed CFOs expect their companies’ growth to come from M&A in the next three years, more than half project 1% to 10%, while more than one-quarter estimate less than 1% of growth to derive from M&A in that time period. Nineteen percent of CFOs expect M&A to account for 11% to 50% of their companies’ growth in the next three years, while just two percent of CFOs expect more than 50% of their companies’ growth to derive from M&A in the next three years.

Almost half (49%) of surveyed CFOs say they will likely use all cash to finance their deals in 2024, with 30% of CFOs also expecting to use alternate structures, such as joint ventures and strategic partnerships. Nearly one-fifth of CFOs expect to use a significantly larger proportion of equity relative to recent financing norms in the next 12 months to get deals done.

For 14% of the surveyed CFOs, their companies will likely turn to lending/preferred financing from non-bank/non-traditional lenders (e.g., hedge funds, other investment vehicles) to finance their deals in 2024. A smaller proportion of CFOs say their companies will likely use all equity (9% of CFOs), seller notes (8% of CFOs), and seller equity (4% of CFOs). Other alternative financing vehicles mentioned included asset monetization, convertible debt, and internal financing from the parent company.

Nearly three-quarters of surveyed CFOs say that among their companies’ top three challenges to M&A or deal success is valuation of assets and widening spreads between bids and asks. CFOs also point to integration/divestiture execution, cited by 36% of CFOs, and status of debt markets, noted by 30% of CFOs. Other challenges are translating business strategic needs into an M&A strategy, noted by 24% of CFOs, and lack of reliable projections and ability to develop a reliable model, indicated by 20% of CFOs.

Only 17% of CFOs say that access to capital and difficulty of financing is a top challenge to M&A or deal success. Some observers may have expected more CFOs to indicate that as a top challenge, given inflation and relatively high interest rates. Other challenges mentioned included regulatory approval, human capital, and organizational capacity.