One way your company can be more transparent is to provide metrics investors love. The principle objective of providing these metrics is to give the investment community – from angels and venture capitalists to public and mutual fund managers – a more complete picture of your company’s health and performance. These metrics are supporting evidence of your story.
The more operational information you are willing to share the better your company will be understood by “the Street”. Investors and analysts will also appreciate greater disclosure, which often results in more favorable treatment because of a greater trust.
Providing metrics can be a double-edged sword, however. In the fickle world of investing, as long as the metrics are moving in the “right” direction, companies will be rewarded with higher share prices and valuations. In contrast, if a company’s trend reverses or if it falls short of its (or analysts’) projections, the “negative” news will be rapidly reflected in its market valuation.
We don’t suggest that you disclose metrics that are sensitive to the business, such as specific customer-related information. But metrics that give investors and analyst measurable means by which to evaluate a sector and compare your company to your peer group are most valuable. The table below represents a suggested list of metrics that are “safe” to disclose.
These metrics all map to revenue, margin, cash flow and earnings. Analysts and investors know how to make the connections. They can also model some or all of these out into the future. Choose the ones that are most relevant and useful. The rest provide additional color.
These are metrics that public companies we’ve worked with have regularly disclosed – some more than others. While some companies may hide behind the “sensitive” veil, these metrics do not unduly aide competitors. Besides, if competitors are doing their homework, they can approximate what these metrics are for your business.
One caveat: Once you begin disclosing a particular metric, do not change its definition at a later date. And do not stop disclosing any metric without warning. Some companies do this because a metric has “turned south” and they are afraid of the investor and analyst fallout.
Few things cause a greater loss of confidence in management that moving the goalposts. If you “miss” on a metric, focus on providing the explanation for why – and what you are doing to fix it. Almost every company experiences an occasional hiccup. Investors and analysts will hold a management in much higher esteem for acknowledging a problem, explaining why it occurred and how they are addressing it head on. Taking this tack will frequently get you the benefit of the doubt. Being evasive turns the laws of investing against you: you become guilty until proven innocent.
What are the most relevant metrics that drive your business and tell your story most effectively? We’re analysts and storytellers. Our fundamental understanding of your space can help flesh out your metrics and messaging. Contact us to see how.
