Optimizing Disclosure Management For Capital Markets: Part 1

Christian Brandl and Stefan Paetzold

Part 1 of a 2-part series

For a very long time, access to capital markets has been the key element to a free market economy. Many established as well as new companies require access to the capital markets to obtain or renew funding to finance their investments. Access to the capital markets and new capital cannot be taken for granted, as the rating of companies in the capital markets depends on many (changing) factors. To achieve growth and be successful in the long run, a company needs to adapt to those dynamic changes and be proactive in the anticipation of economic, political, and social trends.

Effective and efficient capital market communication will play an increasingly important role. Every company will need to convince investors and other market participants about the soundness of its current and future financial situation when it comes to investments, transactions, as well as acquiring and merging with other enterprises.

The performance of a company’s share prices is commonly regarded as a measure of the effectiveness of its corporate management. Effective communication of a company’s financial performance can have a positive impact on its future share price and the cost of capital it needs to secure. Corporate managers will therefore closely review the company’s effectiveness and strategy of its financial communications if the share prices do not perform in line with other companies’ share prices development.

An effective and efficient communication strategy heavily relies on a clear set of processes and structures that govern what type of information will be provided, by whom, when it will become available, and how individual units work together in creation of the financial disclosure.

Current shortfalls

Today, many companies can close their financial books in a few days. However, it still takes them a few weeks or longer to publish their annual reports to the public. This can significantly defer management and stakeholder analyses and decisions.

There are many reasons why companies struggle to publish their financial information earlier. One of the main drivers in this delay is the large number of corporate systems that contain the required information. Companies spend a significant amount of time to gather, review, and approve all the required information from various systems and data warehouses. Consolidated data is then often manually adjusted, harmonized, and verified across many entities and business units. As companies tend to operate in many different countries with their own legal requirements, the number of individual disclosures across the various geographies is also high.

Most companies will spend a significant amount of time coordinating and verifying the delivery of data, keeping track of relevant changes during the closing process, aligning changes throughout the whole report, and finalizing the report to get a consistent set of information. To make matters worse, most companies also experience an increased workload during the end of the preparation phase, just when the amount of financial restatements of already submitted and approved data tend to increase significantly. Last-minute changes that affect a lot of different chapters of the report are common. Manual reporting and review steps impair process agility while also increasing the risk of potential reporting error. The effort spent in executing those manual steps often prevents reporting professionals from effectively analyzing and communicating corporate performance and risk assessments. Instead, these professionals spend excessive time and effort manually copying data and reviewing it for accuracy.

At the end of the process, the financial data package is often manually copied into word processing software, enhanced with additional data from spreadsheets (often with other relevant changes at the last minute), and then reviewed again until finally ready for publication. Once the reports from the various entities and business units are approved, final layout needs to be applied to the whole set of chapters.

Streamlining the last mile

When companies want to optimize their capital market communication, they should focus on the “Last Mile of Finance.” The last mile of the disclosure process refers to assembling financial data, placing the information in reports, and releasing them to the public. Over the last few years, we have seen a significant increase in the functionality of software solutions that can guide corporate accountants and analysts in a well-structured approach to optimize their closing and reporting cycle. Those tools can provide users with very flexible, fully digital collaborative solutions that will allow them to streamline the disclosure process across geographies, various teams from different units, many financial systems and different data sources. (These data sources typically encompass business warehouses, ERP applications, planning and consolidation solutions, and spreadsheets.) These solutions support users by eliminating many of the existing bottlenecks and shortfalls mentioned above. Corporate staff can speed up financial processes significantly without losing any adherence to required data quality, legal compliance on a local or corporate level, and immediate insight into last-minute changes to data, visual graphs, and narratives. In short, the result is a faster financial close.

In our next blog, we’ll cover in detail the primary benefits that such a solution can provide to users. Look for that on Thursday, July 20.

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Christian Brandl

About Christian Brandl

Christian Brandl is a business enterprise principal consultant and has worked for SAP Consulting for more than 5 years. He has been supporting companies as a solution architect and functional consultant in the areas of financial planning, controlling, and consolidation. Christian received his M.B.A. (Master of Business Administration) with a focus on corporate finance and controlling from Purdue University (USA).

Stefan Paetzold

About Stefan Paetzold

Stefan Pätzold is a global business transformation manager, PMP, and has worked for SAP Business Transformation Services for more than 6 years. He has been supporting companies as a program manager and trusted advisor in the areas of finance, controlling, and consolidation. Stefan received his diploma in business administration and engineering with a focus on finance and controlling from the University of Applied Sciences, Giessen.