End of forecasting?

By: Chris Brook-Carter - 28 October 2003 16:39

Should companies stop giving out earnings-per-share guidance? Well it would make my job here a lot harder, but I don’t suppose the analysts at one researcher had that in mind when they suggested just that this week.

According to a survey by the Association for Investment Management and Research, nearly 70% of its 1,050 members worldwide said the practice of corporate management providing specific earnings forecasts could lead to "earnings management," or manipulation of financial reports. And 51% said such guidance would increase the volatility of a company's stock.

According to the survey the money managers would prefer corporate executives to provide them with the "general trend and performance information" about their companies so that the investment professionals can draw their own conclusions.

Coca-Cola has already gone down this route and it will be interesting to see if others follow in the post Enron environment, when any suspicion of "earnings management" is likely to have dire consequences.