Percentage of firms missing EPS forecast by 10% hits 18-month low
Recent accounting regulations appear to be improving the accuracy of companies' earnings forecasts. The percentage of companies among the Standard & Poors 500 stock index that missed analysts' earnings-per-share projections by at least 10% fell to 29.7% in the 2004 third quarter. That's the lowest level since financial management consultancy, Parson Consulting, began the quarterly study in the 2003 first quarter.
The decline in the wide-margin misses suggests that the Securities and Exchange Commission's (SEC) accelerated reporting deadlines and federal Sarbanes-Oxley Act is having a beneficial effect. These regulations shortened the timeframe in which companies must report their quarterly and annual earnings to the SEC, while demanding transparency and accuracy of financial information. This need to report more quickly to the SEC is leading companies to streamline their processes and employ more sophisticated financial systems that improve accuracy of forecasts, Parson experts say.
Commenting on the survey, Mark Hutchinson, Managing Director of Parson Consulting, UK says: "These findings show the key business benefits for companies complying with US regulations. With the forthcoming publication of Flint Review of Turnbull Guidance on Internal Control UK companies need to heed these positive outcomes. With more streamlined processes and integrated systems, the City will get better data and that should contribute to more 'hits' and fewer 'misses' during the forthcoming earnings season in the UK."