FINANCIAL REPORTING SHOULD INCLUDE 토토사이트 라이타 EQUITY
DBR | 1호 (2008년 1월)
By THORSTEN WIESEL, BERND SKIERA and JULIAN VILLANUEVA
A version of this article was originally published by IESE Insight(http://insight.iese.edu)
Investors are the "consumers" of financial reports. They digest the information at hand -- balance sheets, prof토토사이트 라이타 and loss statements and financial notes -- in order to assess a company's performance and future prospects.
Yet, in 2004, the International Accounting Standards Board (IASB) announced in 토토사이트 라이타s "Framework for the Preparation and Presentation of Financial Statements" that this information is not enough to meet the objectives of financial reporting. Firms, 토토사이트 라이타 says, must report add토토사이트 라이타ional information that explains the main trends and factors that underlie their development, performance and pos토토사이트 라이타ion. The American Secur토토사이트 라이타ies and Exchange Commission (SEC) now requires supplemental information, and the Big Six aud토토사이트 라이타ing firms all agree that black and red figures alone paint a cloudy picture.
토토사이트 라이타s are the primary assets of many companies today. Firms with contractual relationships, such as Internet or financial service providers, telecom firms, energy suppliers or pay TV broadcasters, can easily determine the number of existing and lost 토토사이트 라이타s at any particular time. This information is important for those who manage the business -- and it's also important for investors.
In the paper "토토사이트 라이타 Equity: An Integral Part of Financial Reporting," marketing professors Thornton Wiesel of VU University Amsterdam, Bernd Skiera of the Johann Wolfgang Goethe-University Frankfurt/Main, and Julian Villanueva of IESE Business School explain that firms should report "forward-looking 토토사이트 라이타 metrics" to help investors assess a company's performance and its future prospects. Forward-looking 토토사이트 라이타 metrics refer to the value of the 토토사이트 라이타 base and how it changes over time.
"If 토토사이트 라이타 metrics are reported, marketing just might re-enter the boardroom discussion, since the information aligns 토토사이트 라이타 management with corporate goals and investor perspectives," write the authors.
Just looking at a company's current prof토토사이트 라이타abil토토사이트 라이타y is not enough, and here's why: Assume that a company w토토사이트 라이타h contractual relationships reports the metrics for two consecutive periods. The data shows that management has done an excellent job, boosting total cash flow by 32 percent. This is the kind of information that is frequently reported.
Yet, if the firm had reported the next two rows of metrics (the number of acquired and lost 토토사이트 라이타s), the picture becomes less rosy, since the number of losses increased substantially. Evaluating whether the management has done a good job is difficult. In this case, investors should ask management why it created short-term value at the expense of long-term value.
International and U.S. accounting standards are similar in many respects, and the paper's authors focus on five characteristics that are critical for financial reporting and common to both. They are relevance, reliability, comparability, understandability and cost effectiveness. Forward-looking 토토사이트 라이타 metrics must be consistent with these criteria. The authors then propose a technique to report the value of the 토토사이트 라이타 base and its development over time.
To make sound decisions, investors need the following information:
-- 토토사이트 라이타 metrics, e.g., 토토사이트 라이타 retention and 토토사이트 라이타 cash flow;
-- the value of the 토토사이트 라이타 base, usually operationalized as 토토사이트 라이타 equity;
-- components of 토토사이트 라이타 equity, e.g., 토토사이트 라이타 equity before marketing expenditures, total lifetime acquisition expenditures;
-- changes in 토토사이트 라이타 equity and components of 토토사이트 라이타 equity over time;
-- the effects of changes in 토토사이트 라이타 metrics over time.
In general, write the authors, 토토사이트 라이타 equity reporting should comprise two main elements: the "토토사이트 라이타 Equity Statement" and the "토토사이트 라이타 Equity Flow Statement."
The first, the "토토사이트 라이타 Equity Statement," reports 토토사이트 라이타 equity (the value of the 토토사이트 라이타 base) and its components in a clear, single display.
The "토토사이트 라이타 Equity Flow Statement" describes changes in 토토사이트 라이타 equity and its components between two periods and reports the influence of any changes in 토토사이트 라이타 metrics on 토토사이트 라이타 equity.
The authors apply this reporting technique to Netflix, whose principal activity is to provide online movie rental services through access to more than 55,000 movies, television and other entertainment titles. Netflix's standard subscription plan gives 토토사이트 라이타s up to three titles at once with no due dates, late fees or shipping charges. Shipping and receiving centers throughout the United States deliver the DVDs through the U.S. Postal Service at no charge to 토토사이트 라이타s.
Because Netflix is listed on the NASDAQ, it must fulfill several SEC requirements, which are described in its "Management Discussion & Analysis" and are required in the United States. Consequently, it provides information about 토토사이트 라이타 churn and 토토사이트 라이타 acquisition costs. It also notes that management not only reviews churn rates to evaluate whether the company is retaining existing 토토사이트 라이타s, it also reviews acquisition expenditures to evaluate the efficiency of marketing programs for acquiring new 토토사이트 라이타s.
Using publicly available data on Netflix from September 2001 to September 2006, the authors calculate Netflix's 토토사이트 라이타 metrics and reveals trends in the company's 토토사이트 라이타 equity. These trends allow investors to evaluate the firm's ability to solve the problems of previous periods and its potential to outperform previous growth in 토토사이트 라이타 equity.
"We believe that if more firms follow the example of companies such as Netflix and disclose better information about their 토토사이트 라이타 base, models for calculating and decomposing the value of the 토토사이트 라이타 base (i.e., 토토사이트 라이타 equity) and 토토사이트 라이타-based firm valuation will gain more importance in practice."
The reporting technique proposed by the paper's authors is a starting point for considering the value of the 토토사이트 라이타 base in a firm's financial report. It supplements and complements current information in financial statements, as demanded by the SEC and the IASB.
Forward-looking 토토사이트 라이타 metrics are a necessary and useful managerial tool that can make investor decisions a whole lot easier.
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