To Guide or Not to Guide? The Practice of Providing Guidance
All public companies face the challenges of helping the investment community understand their business—how they’ll grow, how fast they’ll grow, what investments are required, and what kind of volatility there may be in their financial results. Those companies that can effectively communicate how they will grow, and then execute predictably, have the greatest potential to earn higher-than-average valuations over the long term.
The practice of providing financial guidance is a powerful tool for helping the market realistically frame its expectations for your performance, as well as for decreasing the likelihood that your actual results will miss the Street’s expectations in the near term. And indeed, according to IR Magazine, 68 percent of companies worldwide provide earnings guidance to investors at some point during the year, to create greater transparency for their shareholders and analysts.
