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Taking stock of communications: The critical role of non-financial factors in company valuation

by | Jun 14, 2022 | Public Relations

New research from strategic communications and advisory firm ICR reveals that four in five professional investors (80 percent) believe that at least 20 percent of a company’s valuation is impacted by non-financial factors, and more than half (57 percent) believe it’s at least 30 percent.

Interestingly, the firm’s new 2022 Taking Stock of Communications survey, conducted by PRWeek, found that communications professionals (e.g. investor relations officers, corporate communications and marketing executives), whose expertise it is to help clarify and amplify financial results, actually underestimate the value of non-financial factors by about 10 percent. When compared to the professional investors, seven in ten communications professionals polled (71 percent) believe that at least 20 percent of a company’s valuation is impacted by non-financial factors, while less than half (45 percent) believe it’s at least 30 percent.

“ICR has always operated with a core belief in the importance of managing what we call the ‘Perception Quotient’ and this survey validates our thesis,” said Tom Ryan, founder and CEO of ICR, in a news release. “While the long-term correlation between financial performance and share price is undeniable, in any given period—one quarter, one year, or even five years—as much as one-third of a company’s value and reputation can be attributed to a long list on non-tangible, non-financial factors.”

Taking stock of communications: The critical role of non-financial factors in company valuation

Overall, when asked how much value specific non-financial factors impact investor perception of a company’s valuation, “perceived credibility of management team” ranked highest (84 percent), followed by a “clearly articulated strategy and business plan” (81 percent) and “quality of communication” (76 percent). It’s worth noting that “quantity of communication” was identified as the least important factor (20 percent).

“The quality and presentation of a company’s narrative to complement the numbers is a critical driver of a company’s equity value,” added Ryan, who was also a sell-side analyst on Wall Street for a decade. “Creating context around the numbers can come in several ways, such as providing thoughtful quarterly commentary, delivering insightful answers to tough questions, and articulating the growth story through business and financial media.”

Taking stock of communications: The critical role of non-financial factors in company valuation

Related to third-party sources of company news and information, business and financial media remains very influential on the decisions that investors make, with 85 percent of survey respondents identifying both Bloomberg News and The Wall Street Journal as the most relevant outlets.

Beyond traditional media, more than half of respondents (54 percent) said social media is deemed to have a material impact on investment decisions, ranking Twitter (64 percent) and LinkedIn (59 percent) as the most effective to communicate with investors. Similar to viewpoints related to non-financial factors, a higher percentage of professional investors (66 percent) than communications professionals (49 percent) feel social media is impactful, suggesting the latter may not be giving it enough focus in this regard.

Taking stock of communications: The critical role of non-financial factors in company valuation

In addition, this survey revealed large gaps between how comms professionals rate their investor-focused communications compared to how professional investors rate them. When asked to judge their effectiveness across seven criteria, communications professionals rated themselves either “excellent” or “good” between 25 percent and 44.9 percent higher than professional investors did. The important takeaway is that investors have a different perspective than most traditional audiences and it is critical to fully understand their perspective, the communication that resonates and how best to deliver it.

Download the full report here.

The 2022 Taking Stock of Communications survey was conducted between February 3 and March 11, 2022 by PRWeek on behalf of ICR. The survey enlisted more than 100 U.S.-based professionals comprising senior-level PR, marketing and IR officers, as well as securities analysts, institutional investors and independent investors.

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Richard Carufel
Richard Carufel is editor of Bulldog Reporter and the Daily ’Dog, one of the web’s leading sources of PR and marketing communications news and opinions. He has been reporting on the PR and communications industry for over 12 years, and has interviewed hundreds of journalists and PR industry leaders. Reach him at richardc@bulldogreporter.com; @BulldogReporter

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