In KPMG’s recently released report, “Room for improvement: The KPMG Survey of Business Reporting,” the major complaint is that, while a majority of companies typically supplied data for the six key performance indicators (see below), it was mostly single-period quantitative data with a small amount of contextual information. Very few reports, for example, gave sufficient information to determine whether a business was growing.
Companies are often cited as being frustrated by investors’ focus on short-termism, says the report, but, if that is the extent of the information they receive, plus historical performance, they cannot analyse long-term prospects. While financial reporting plays a central role in this communication, it “cannot present a complete picture of business performance and prospects on its own.” Instead, investors need to assess what the report calls the “underlying health of the business, its potential for growth, and the long-term sustainability of its earnings.” If companies only provide current-year earnings, these are likely to be valued more highly than longer-term business prospects, simply because that is all that can be assessed. With this in mind, notes the report: “businesses that are investing in their long-term prospects may find it difficult to compete for capital with those that are instead prioritizing short-term earnings.” Improving reporting is thus positive for both investors and businesses.
