Parson: Faster Financial Filings May Equal Higher P/E Ratios

June 26, 2003 ( - While companies are taking longer to get out annual financial reports, a new study suggests disclosing the information faster may translate into higher price-to-earnings (P/E) ratios.

Companies that disclose financial information faster than normal are achieving an average 11.2% premium in their P/E ratio, according to a study by financial management consultant Parson Consulting.   “During this time of widespread shareholder distrust, the market provides evidence that many investors perceive earlier release times to indicate well- run financial operations,” Rick Fumo, senior vice president, practices of Parson said in a statement.

However, larger companies are apparently taking longer to file their annual financial report than upcoming US Securities and Exchange Commission (SEC) guidelines favor – guidelines adopted in an effort to make important financial information available to investors more quickly.   Nearly half (49%) of the S&P 500 does not meet the shorter annual report filing deadline of 75 days for 2003, while the vast majority (86%) are well behind in meeting the 2004 cutoff date of 60 days.

Looking at 2002, the average S&P 500 company filed its annual report with the SEC in 75 days, just meeting the 2003 limit, and released earnings in 29 days.

Quickest on the annual report draw were companies in the industrial and consumer-discretionary industries, which average 72 days in filing. On the other end of the spectrum, companies in the financial and consumer staples industries take a more sloth-like 77 days to file.

However, the tables are turned when examining earnings release dates.   Companies in the information technology and finance industries average releases in 25 days.   Conversely, companies in the consumer staples and materials industries are the slowest to report, with an average of 33 days.

Companies that must retool their reporting systems to meet these deadlines are already facing significant costs. More than half of the companies’ finance budgets have increased by up to 20%, and senior finance executives are adding an average of three extra hours to their workweek to comply with the Sarbanes-Oxley Act.