Corporate performance: what do investors want to know?

Understanding the needs and opinions of investment professionals is crucial if management teams are to prepare truly useful financial reports and accounts. PwC has conducted a series of surveys of investment professionals aimed at maximising the effectiveness of corporate reporting. This first set of findings address the disclosure of adjusted performance measures.

Reporting adjusted performance measures

When investment professionals analyse a company, their goal is to understand the quality and sustainability of its ‘underlying’ or ‘core’ performance. They want insight into what drives profits year on year and the measures that management teams consider to be market moving. They want to understand the impact on company performance of management actions relative to general market conditions. They also seek a clear line of sight into any potential challenges.

Key findings

Adjusted performance measures (APMs) are widely reported by companies alongside GAAP-based results. Based on interviews with investment professionals around the world, it is clear that APMs are highly valued. Nevertheless, their value could be enhanced substantially by changes in how they are reported. Investment professionals tell us:

  • A substantial majority of investment professionals find APMs useful; only 12% do not.
  • Companies could improve the quality of their APM reporting: 95% of investment professionals would like management teams to provide clearer descriptions of the items they have adjusted when calculating their ‘underlying performance’ measure, as well as why they thought it appropriate to make the adjustments. Corporate performance: what do investors want to know?
  • They are sceptical about the balance management teams display in reporting APMs. This is a concern because a lack of balance in APM reporting could damage management’s credibility with investment professionals: 81% of investment professionals say that if management’s adjustments to GAAP numbers seem aggressive or unusual, their evaluation of the riskiness of management increases. Corporate performance: what do investors want to know?
  • Investment professionals would find it helpful to know that companies were applying some basic ‘ground rules’ to their APM reporting. This would give them greater comfort in the relevance and reliability of the data they use in their own performance analysis.
  • There is a case for considering assurance of APMs where not already obtained. Only 22% of investment professionals think that the measures that move markets (including APMs) are sufficiently reliable. Corporate performance: what do investors want to know?