Nick Britton, Editor of  GrowthBusiness.co.uk which provides online business news, research and insights, comments on financial forecasts for large companies across the world.

“Companies’ balance sheets are improving, but the confidence and appetite to complete mergers and acquisitions shows no increase and is even falling.

“That’s the surprising result of research from professional services firm KPMG, which looked at financial results and forecasts for large, publicly quoted companies across the world.

“In the UK, forecast net debt compared to EBITDA is set to fall 30 per cent over the next year, while net debt itself will drop 21 per cent, showing extensive deleveraging. So it appears companies are building up war chests to fund M&A activity.

“But that picture is spoiled by analysts’ forward price/earnings ratios, which are down 14 per cent over the last 12 months for UK companies. David Simpson, KPMG’s global head of M&A, calls it a ‘strange impasse’, where companies are paying down debt, but market confidence is falling.

“He compares it to the situation faced by the stock market in general, where valuations are improving despite economic nervousness – ‘climbing a wall of worry’.

“Research into IPOs on AIM over the past year from our sister site Growth Company Investor helps to gauge how far confidence is returning to the junior market. Again, there’s the same pattern: the numbers point to improving market health, with 47 new issues raising money compared to 13 in 2009, but there’s little trace of the bullishness and excitement that characterised the glory days before the credit crunch. Chilton Taylor, head of capital markets at accountancy firm Baker Tilly, says that AIM is ‘still fragile’, though he adds that its continued success in attracting companies from overseas, especially emerging economies such as India and China, is an encouraging sign.

“As we enter the Chinese Year of the Rabbit, let’s hope investors and dealmakers take their cue from that animal’s legendary fecundity, and not its timidity.”

Image copyright: