Companies too slow on profit warnings

Ernst & Young's latest Profit Warnings Watch found that profit warnings by Australian listed companies increased 52 per cent in the six months to June 30, 2003 from the previous half-year, and 33 per cent on the previous corresponding half.

Companies issued a record 117 warnings in the half – but Ernst & Young said about 50 per cent of the companies are not issuing the warnings to investors soon enough. Although there are warning signals – such as customer loss, more bank debt, tightening margins, increased competition, litigation – the survey suggests that companies waited too long to inform the market. The data suggests that companies allow market expectations of a profit to remain positive as long as possible under disclosure guidelines. This is largely due to the impact that profit warnings have on share prices.

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