CORPORATE INTERIM REPORTING – PROS AND CONS

Interim reporting is a means of communicating the results of business operations on a periodic and regular basis by the corporate entities. The corporate quarterly performance has taken center stage in recent times as far as the stock market is concerned. It has been the management observation that in recent times the stock markets have tended to react instantly to information which is available in quarterly financial reports. Quarterly results are of great utility for investing community. Investors consider that the interim financial is of more value than financial information which enables them to analyze the actual performances and also to revise their projections. Interim financial reports provide price-sensitive data to investors. Timely and reliable interim financial reporting improves the ability of investors, creditors, tax authorities and others to understand an enterprise’s capacity to generate earnings and cash flows and its financial condition and liquidity.

The frequency of interim reporting varies from country to country. For instance, interim reports are required every quarter in USA and on a half-yearly basis in UK. In India, interim reports are necessary as per the requirements of the clause 41 of the listing agreement between the companies and the respective stock exchanges. Under clause 41 of the listing agreement, all listed companies are required to

Furnish unaudited financial results on quarterly basis within one month to the stock exchange, where the company is listed.

Advertise the financial results within two working days of th conclusion of the board meeting, at least in one national newspaper and in the one regional newspaper in which the registered office of the company is situated.

Further more, an amendment to section 21 of the Securities Contract (Regulation) Act has been made recently whereby it has been made mandatory for companies listed on the stock exchanges to comply with the interim reporting requirements specified in the listing agreement.

Usually, there are uniform pattern followed for interim reporting. This pattern is bifurcated into two types, i.e, compulsory information and voluntary information.

CORPORATE QUARTERLY RESULTS AND DAY TRADERS

The announcement of quarterly results can also be a good step to bring transparency. If corporate feel compelled to focus on short-term on account of quarterly reporting they have only themselves to blame. Over the last few years the Indian stock markets have become increasingly sophisticated in the comprehension of corporate performance. Quarterly results, are used more to understand progressive trends in business, rather than to arrive at quick judgments on a company’s performance. Good corporate use this opportunity of quarterly disclosures to build a process of stretch in their own organizations, which in turn enhances their competitive abilities.

Short term investors in share market seeking to exploit market volatility would tend to focus on quarterly results. The long-term and institutional investors do not base their investment decisions merely on quarterly results. A lot of importance is given to the quarterly results than to annual results, but the impact of quarterly results is temporary in nature because of the view taken by day traders and short-term investors. The institutional investors and the long-term investors would look at the overall scenario and they would also factor-in the nature of business of the company, international market positions etc. and ultimately those publish good result consistently would only get better valuations.

PROS

v     It helps to know the current financial year performance is progressing in the direction of the long term goals of the company or not.

v     It helps the shareholders to know about the progress of the company

v     It guards the shareholder against the promoter who takes advantage of price sensitive information.

v     It provides transparency.

v     It generates pressure on managements to perform well

v     It reduces scope for year end creative accounting.

v     Short-term accessibility of financial information is possible.

v     It guards the shareholder from the fly-by-night promoters.

CONS

v     It creates unwarranted volatility of price in the market place.

v     Insider trading can manipulate the price in the share market.

v     Delayed disclosure is a punishable offence; it creates huge workload of the officials.

v     Haste makes pressure on accounts departments

v     Announcement in newspaper is the additional financial burden.

CONCLUSION

Quarterly result helps in achieving the long-term goals by quarterly reviewing of the financial parameters whether they are going in the right direction towards long-term goals. Drawing of quarterly results not only helps the company itself but the investors also by transparent reporting of the quarterly performance.