MORE THAN NUMBERS
Investors want more than vetted financials
By Cesar Bacani

What do global investors want from Asia’s CFOs? New research suggests that comprehensive, accurate, and vetted financial figures are no longer enough. Instead, says Matthew Podrebarac, an executive partner at consulting firm Accenture, investors want a better feel for intangibles. “Expectations have changed,” he says. “Traditional financial metrics and tools are geared towards current value, but now future value is more important.”

An Accenture study of 501 international investors makes this clear. Asked how they make an investment decision, 65% said they evaluate both a company’s fundamentals and its intangible, non-balance sheet assets. The most important intangibles are company reputation, ability to innovate, brand-name recognition, and the track record of the company’s leadership. Investors also want to see how the company stacks up against the industry sector or peers, and how it is performing relative to key drivers of growth and strategy.

Are they getting what they want? Apparently not in China, Hong Kong, and Taiwan. Another Accenture survey of 177 greater China CFOs found that a third of respondents did not include relative performance against industry sector or peers in their annual report last year. Reports also lack data on the executive team’s track record, discussion of management outlook, and evaluations of the company’s ability to innovate and develop new products.

“CFOs should determine what drives shareholder value in their organization and create key metrics around these drivers,” says Podrebarac. Most CFOs and even some investors do not realize that it’s common for companies these days to have more than 70% of their market value tied up in intangible assets. These include such things as back-office performance (operational risk, level of internal control), financial strength (credit ratings, borrowing capacity, quality of investor relations), customer relations (brand awareness, customer satisfaction, and loyalty), human performance (management quality, leadership capabilities), and technology (data integrity).

Skeptics may argue that Chinese companies are better off improving their reporting of the tangibles, since the accuracy and completeness of their financial statements have often been questioned. But even if they do get that right, it seems that there is another mountain to climb.