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FDs face chop as UK company earnings miss estimates

According to The Hackett Group, which surveyed 70 large companies in the US
and across Europe, two out of three missed their quarterly earnings forecasts by
anywhere between 6% and 30%. It added that companies were finding it much harder
to forecast sales growth by quarter, with 14% of companies characterising
themselves as high risk or high volatility – and that this could double by 2010.

“It’s shocking to see this level of poor performance in such a key area,”
said Fritz Roemer, head of Hackett’s enterprise performance management executive
advisory programme. “We’ve seen companies take severe hits in the past few years
after missing forecasts. Analysts suddenly question the competence of
leadership; stock prices become unstable and valuation drops. In some cases,
CFOs have had to resign yet companies still refuse to make the necessary efforts
to get this area under control.”

Hackett said current forecasts model used by most companies didn’t work and
recommended moving to rolling forecasts that take into consideration business
risk and volatility, and increasing transparency of forecasts.

Roemer added, “By using rolling forecasts, which force companies to look
beyond the artificial horizon of their year-end, by considering risk and
volatility, and by measuring accuracy in forecasting, companies can make real
improvements in this key area and reap rewards from the investment community.”

www.thehackettgroup.com

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