Most large companies miss financial forecasts
Article Date: Feb 08 2008Two-thirds of large European and US companies are unable to forecast quarterly earnings within a five per cent error margin, according to research from advisory firm The Hackett Group. Despite harsh penalties from the market for getting it wrong, companies still miss the mark by up to 30 per cent, claims the study.
Fritz Roemer, who leads Hackett’s executive advisory programme, comments: ‘We’ve seen companies take severe hits in the past few years after missing forecasts.
‘Analysts suddenly question the competence of senior leadership. Stock prices become unstable and valuation drops dramatically. In some cases, CFOs have had to resign. Yet companies still refuse to make the necessary efforts to get this area under control.’
According to the 70 large public companies surveyed by Hackett, forecasting is getting trickier as the performance of their businesses becomes less predictable. Almost one in seven companies now regard themselves as being highly risky or highly volatile, compared with one in 50 three years ago.
The Hackett study recommends several measures to improve the accuracy of financial forecasts. Changing from year-end to rolling forecasts would enable companies to more accurately cope with market turbulence, says the firm, which also advocates matching the frequency of forecast updates to the level of risk and volatility within the business.
