FRC Lab report confirms the importance of business model disclosure to investors
27 October 2016
The FRC’s Financial Reporting Lab has published a report on Business Model Reporting which provides valuable insight for companies on the importance of business model information to investors, and the type of information they are seeking.
This report forms part of the FRC’s Clear & Concise reporting initiative that promotes transparent and accessible reporting. The report reflects the views of 19 companies, 36 investors from 27 investment and analyst organisations, and two retail shareholders who contributed to this Lab project.
The Lab found:
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Business model information is fundamental to investors’ analysis and understanding of a company and a lack of good disclosure on business model raises concerns over the quality of management;
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As business model information provides context to the other information in the annual report most investors want it positioned towards the front of the Strategic Report;
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Where a company operates a number of business models, disclosures of each significant business model is desired;
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Investors are looking for better natural linkage of business model information to other sections of the Strategic Report, and consistency with disclosure in the annual report; and
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Investors are looking for more detail than is currently provided by most companies. In particular investors find disclosures are often lacking information that answers questions such as:
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What are the key revenue and profit drivers and how do profits convert to cash?
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Are there any key asset and liability items that support the business model?
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What is the company’s competitive advantage?
The Lab report also includes examples of current good practice as well as highlighting how disclosure could be modified to provide more value to investors.
Full press release
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