Most corporate financial forecasts unreliable: KPMG

20 December 2007

Financial forecasts from companies are usually unreliable and can be as inaccurate as 13 per cent on an average, says a new study from global audit, tax and advisory firm KPMG LLP.

The KPMG study, Forecasting with Confidence, conducted by the Economist Intelligence Unit, was based on surveys of 544 senior executives involved in the forecasting process, of which 35 per cent of those surveyed were from Europe, 30 per cent from the Americas and29 per cent from the Asia Pacific region.

Over 30 per cent of the respondents were CFOs and 59 per cent were from a cross-section of industries and represented organisations with over $1 billion in annual revenues.

The study found that barely one per cent of companies could produce accurate forecasts, while 78 per cent of the companies reported forecasting errors of over 5 per cent.

The underlying theme of the study is that unreliable forecasts cost the company money and revealed that companies with unreliable and inaccurate forecasting suffered an average decline of 6 per cent in their share price over the past three years.

Conversely, the share prices of companies that reined in their forecast fluctuations below 5 per cent rose 46 per cent rise over the same three-year period, compared to a 34 per cent increase among the companies that had more than a 5 per cent margin of error in their forecasts.