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February 02, 2010
Investors now giving firms’ predictions more scrutiny
Sanchia Temkin
Business Day
Impairments reported during the past two years were less than expected, according to a study of investors, analysts and lenders released by Ernst & Young yesterday. The study of 170 users of financial statements across 32 countries found that the three sectors most likely to experience further impairments over the next 18-24 months were the property, banking and capital markets, and the automotive industries.
“Investors, analysts and lenders recognise the uncertainties and difficulties of managing a business in the current uncertain economic environment,” said Jim Eales, a global valuations and business modelling leader at Ernst & Young.
“Nevertheless, their confidence remains fragile and they are cautious about management’s outlook for the future of the business.
“As a result they will naturally be more inquisitive, wanting greater transparency and explanation behind the assumptions management makes about the company’s future,” he said.
Anil Khimjee, director of valuations and business modelling in SA, said the study’s findings were relevant to the South African market.
The challenge facing companies in preparing reliable forecasts was in many instances further complicated by a lack of adequate and timely planning, Khimjee said.
Given the unique local environment, the volatility in exchange rates added more uncertainty to the outcomes, and the lack of comparable transactions on the market made it difficult to compare the results.
The majority of respondents (90%) in the study said they expected that forecasting cash flows in the next 12-18 months would be challenging.
Most tended to use impairment- testing information disclosed in financial statements in their investment or lending decision-making process, including to
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