More than 80% of European listed companies think their performance isn't accurately reflected in their share price – and that analysts don't fully understand the fundamentals of their business.

The damning statement comes from a survey conducted by accounting firm RSM International.

At the same time, senior company executives believe analysts are the most effective market influencers.

The survey, launched in spring, initially targeted UK companies but was extended to companies across Continental Europe in early summer.

RSM received 190 responses from companies of all sizes, from over 30 sectors and in eight countries.

Their market capitalisation was around €120bn. Respondents ranged from chairmen and chief executives to chief finance officers and heads of investor relations.

Among the respondents, 16% believe that analysts really understand the fundamentals of their company and 23% believe that analysts have poor,
or no knowledge; less than 40% have a specific strategy for enhancing market value; only 51% companies believe that share price is important to strategic decision-making and 12% feel that their strategy is not understood by the market.

RSM International chairman Chris Connor, believes this is a prime opportunity for the profession to step in, to help clients put out the message about their companies.

'Analysts are the ones who seem to have the biggest impact. I think the accountants need to help with the explanation of market value,' said Connor.

'But how do you communicate with the market effectively? You start by checking what the market wants to know, as some markets rate company value on the basis of cash flow, while others place value on earnings per share, or the return on capital.

'If you're in an arena where net cash flow is the best measure, and all you talk about is earnings per share, you may not hit the mark.'

He also suggested that auditors could even spend more time with analysts so as to better understand their needs.

'Accountants work in commerce and industry. I'm not suggesting it is the role firms to start explaining a company's value to analysts, but clearly accountants in firms can help clients to get the message of their company's value over by explaining this to clients and getting them to understand the role of business in shares on the market,' said Connor.

RSM International plans to repeat the Market Value Survey on an annual basis to trace movements in European listed companies’ perceptions of value.

Further reading

The 2006 Market Value Survey

In the frame: accounting frameworks