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Investors want information and lots of it, says Baruch Lev in the November 2011 edition of the Harvard Business Review.
In his article ‘How to win investors over’, Baruch investigates the controversial trend of publicly releasing managerial forecasts of a company’s profits. He suggests that in the current market managers cannot avoid discussing capital, and the more information investors receive, communicated in an honest and understandable manner, the better.
Baruch focuses on three ways in which mangers can inform investors. These include pro forma earnings, or performance measures that do not accord with GAAP measures, along with earnings releases and ‘soft’ information – the story and narrative as opposed to hard numbers.
Several guidelines to judge whether your earnings forecasts should be communicated to investors include the below:
– Guide investors only if you are a better predictor of earnings or sales than analysts are
– Review if guidance is prevalent in your sector; if so, you should definitely consider it
– If you want to convince investors of your favourable earnings prospects, include guidance about major drivers of income such as sales, margins and major operating costs
– Avoid losing credibility and manipulating expectations
Baruch recommends reviewing the extensive research on how investors react to various corporate behaviours to make the right decision for your company.
Pesel & Carr can help you establish what you should be saying to your investors and how to say it through a variety of communication channels. Contact our Investor Relations team today to see what opportunities exist for you.
You can read a preview to Baruch’s article here.
