A dramatically different reporting framework has been called for in order for companies to gain competitive advantage in volatile markets. According to a new book from Pricewaterhouse Coopers, ‘The Value Reporting Revolution: Moving Beyond the Earnings Game,’ the need for companies to provide more and better information to shareholders on the underlying value of their business has never been more imperative than in the current economic climate where competition for capital is fierce. The overall visibility that companies have in the capital markets, and thus their potential share of investment, will be raised by significantly improving the quality and depth of their corporate reporting.
Traditional financial reporting measures tangible assets, such as stocks, equipment and premises. They do not, however, deliver much of the information that investors use to assess companies today, when market valuations are increasingly based on intellectual capital, market share, brand value and other ‘soft’ assets that create shareholder value in a knowledge-driven economy. Nor do they include the non-financial performance measures such as customer retention; employee turnover and speed to market that are the leading indicators of financial results.
David Phillips, partner with PwC and co-author of the book said, ‘Volatility in stocks is often driven by lack of information and, while this will never go away entirely, if critical management information is missing, this gap will become readily apparent to investors. It is in the best interest of companies to keep their shareholders and other stakeholders including employees, customers and suppliers on board longer-term by making this information more visible’.
He urges for the adoption of a dramatically different reporting framework -ValueReporting, in order to provide the information that all investors, including individual’s need in today’s economy. Forward thinking companies are already seeing delivering information on their market place, their strategy, and the intangibles and other non-financial data that are lead indicators of the future performance of the business, as creating competitive advantage. |
