When Your Company Has Bad Financial News… Don’t Do Any of These Things

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When Your Company Has Bad Financial News… Don’t Do Any of These Things

By Small-Cap Institute

Business performance is not linear and is often challenging to forecast.  Every public company is going to have bad news periodically.  It is a certainty, and every investor knows it.  Unfortunately, public companies – especially small-caps – regularly engage in linguistic games to try and camouflage bad financial news.  Investors see it coming from a mile away.

Here’s a sample of how revenue-producing companies regularly try to distract investors from bad news:

• Serial, italicized, headline subtitles that refocus attention away from key financial results

• Overemphasis upon non-GAAP results, and even discussing them to the exclusion of GAAP results

• Introducing completely new reporting metrics – just for the quarter – to highlight data that might distract investors from the poor results

• Long-winded CEO quote setting forth how “unbelievably excited” they are about some of the “extremely transformative” things the company is working on that make them “incredibly optimistic”

• Changing the comparative reporting periods to opportunistically highlight sequential results, since the year-over-year comparisons are bad

• Lengthy, bullet-pointed lists of “business highlights” that are predominantly comprised of immaterial information

• Introduction of new initiatives that investors don’t hear much about thereafter

Be smart: the only way to handle bad news is directly. No matter what you’re being advised, every other path destroys trust and erodes value.