Wednesday, December 05, 2007

KPMG study shows flaws in corporate reporting data

A recent KPMG study shows how badly companies are at meeting their projected earnings. It might make good fodder for class-action lawyers. Only 22% of companies came within 5% of their projections, according to the global study, entitled: Forecasting with Confidence. KPMG surveyed 544 senior executives, 30% of them chief financial officers, drawn from a cross section of industries. About 59 % were from organizations with annual revenues exceeding US$1 billion.

Average forecasts over the last three years have been out by 13%, and such errors have knocked 6% off share prices. As we come upon Q4 earnings season, keep that in mind. However, those firms whose forecasts that came within 5%, actually saw their share prices rise 46% over the last three years. The findings raise questions about whether all the new regulatory efforts on reporting and disclosure are working. Plaintiff shareholder counsel might want to arm their litigation quivers with some of the following findings:

Almost 50% of companies surveyed believe the reliability of their financial data for forecasting is merely adequate or worse; a majority think the same of their non-financial data

Two out of the four areas where companies say they make forecasting errors are consumer demand and economic drivers — both of which could be helped by readily available external data.

KPMG study shows flaws in corporate reporting data

Labels: KPMG, projected earnings study

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