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Financial reporting survey — Issue 8 — Understanding performance – underlying profit

Published on: 28 Jun 2012

This publication considers the practice of providing alternative measures of financial performance in the 2011 annual reports of 100 New Zealand companies as a follow up to a 2010 survey (Issue 6).

The results of the 2012 survey suggest that the disclosure of alternative profit measures in annual reports may need some revision in light of the New Zealand Financial Markets Authority (FMA) proposed new guidance on non-GAAP financial information.

The survey found that 89 out of the 100 companies surveyed referred to alternative profit measures in addition to “bottom line” statutory profit in their 2011 annual reports.

In total, 250 alternative profit measures were used by the companies, including ‘earnings before interest, tax, depreciation and amortisation’ (EBITDA), ‘distributable profit’, ‘operating profit’ and ‘underlying earnings’. This is an increase on 214 measures disclosed in the prior year survey.

More than 50% of the companies provided three or more alternative measures of profit.  In addition, contrary to the FMA’s proposed guidance, the survey also found that 27 companies discuss their underlying profit more prominently than their statutory profit in the annual report so some changes will be needed in this respect.

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