One thing investor relations professionals (and finance executives) should work on during 2009 is our ability to look into the future, forecast likely or possible business outcomes, identify the risks … and communicate that forward-looking perspective.
My fear is that companies, stung by the financial calamities of 2008, will shrink from providing any forward-looking information. This is not helpful for investors – and could damage capital market relationships.
CFO Magazine encouraged finance chiefs to retool their forecasting abilities (see “Future Tense” story in December issue):
Forecasts of 2008 revenues and profits have missed the mark substantially at many organizations. That’s not remarkable, given that the speed and severity of the third-quarter collapse caught nearly everyone off guard. …
The credit crisis and the downturn in world economies may offer a useful lesson: forecasting can’t be just about number-crunching. Static spreadsheets filled with hundreds of line items that represent best guesses from operations just won’t cut it if a company hopes to produce forecasts that aid quicker, fact-based decisions under stress.
Nor, we might add, will forward-looking statements to investors cut it if they fail to examine and disclose assumptions about economic conditions, key drivers of the business, and risks to the expectations.
It’s understandable if a company wants to say, amid the current turmoil, we simply cannot predict earnings or what will happen in the economy. EPS ranges and CEO/CFO “comfort levels” seem retro, anyway.
But a company can provide valuable perspective by defining some scenarios for demand and other key business drivers. We can describe, at least directionally, what these assumptions mean to results going forward.
Most importantly, we can spell out management’s strategy and explain how it will maximize value for shareholders, even if difficult conditions persist.