Question

Unilever no longer provides quarterly earnings reports and suggests that this has allowed it to focus shareholders on its longer term goals”. Critically assess this strategy from the point of view of investors, potential investors and shareholders. What are the risks and benefits associated with such a strategy?

Answer 1

A quarterly earnings report is publishing of quarterly results of the performance of public companies to the general public. It includes net income, earnings per share, revenue etc.

Companies argue that quarterly earnings report leads to undue focus on frequent reporting rather than on focusing growth, profitability, and other objectives. It does not mean that the company should abandon the quarterly earnings reporting. It will help the investors to be informed of the financial health of the company. It is not good for the company to follow a strategy of not issuing quarterly earnings reports. Because better and timely information for investors is necessary. The companies must follow a reporting system in pursuit of longer-term objectives. And, the results must be interpreted in line with the company objectives.

Benefits of quarterly earnings reporting

• It helps to enhance internal controls in the companies
• It helps the investors to be informed about the financial health of the company
• It satisfies the requests of investors and analysts
• It will drive the management’s focus on achieving financial targets
  

Risks involved in quarterly earnings reporting

• Stock prices may fluctuate wildly when the quarterly earnings reports are published.
• There are chances for accounting abuses in an effort to make timely reports.
• The company will have the responsibility to achieve the target mentioned in the reports. If the company did not achieve it, it will affect its image
• It is a compliance burden on the companies