Table of Content
- Definition
- Examples
- Frequently Asked Questions
- Related Terms
- Online References
- Suggested Books for Further Studies
Definition
A preliminary announcement is an early communication that listed companies are required to make under London Stock Exchange (LSE) Regulations regarding their annual profit or loss. The announcement, which needs to be lodged with the Stock Exchange, usually contains:
- A summarized profit and loss account.
- Occasionally, a balance sheet and additional financial information.
The key aim is to provide pertinent financial data to help investors make informed decisions. Although there is no requirement to send this announcement directly to shareholders, companies frequently publish the summary in national newspapers and share it with investment analysts and journalists, thereby generating significant media coverage. The Financial Reporting Council issues guidelines to ensure best practices are followed in these preliminary announcements.
Examples
Example 1: Tech Corporation
Tech Corporation, a listed company on the LSE, announces its preliminary yearly profit of £15 million compared to last year’s £10 million. The company also provides key balance sheet highlights showing improved liquidity and reduced liabilities. This announcement grows confidence among investors and positively impacts share prices.
Example 2: Retail Giant Co.
Retail Giant Co. publicly releases its preliminary financial results, showing a loss of £5 million, primarily due to reduced sales during a downturn. They summarize their efforts to cut costs and forecast improvements in the next fiscal year. Despite the loss, transparent communication helps retain investor trust and stabilize share prices.
Frequently Asked Questions
What must be included in a preliminary announcement?
A: At a minimum, a summarized profit and loss account must be included. Companies are increasingly also providing other financial information like balance sheets.
Is it mandatory for companies to send preliminary announcements to shareholders?
A: No, it is not required for companies to send preliminary announcements directly to shareholders, although they must lodge it with the Stock Exchange.
How are preliminary announcements disseminated to the public?
A: Companies often publish the information in national newspapers, provide details to investment analysts, and release them to journalists, ensuring significant press coverage.
Why do companies release preliminary announcements?
A: Preliminary announcements provide critical financial performance data ahead of time, helping investors make informed decisions and maintain market transparency.
Who oversees the guidelines for preliminary announcements?
A: The Financial Reporting Council issues guidelines to ensure best practice standards are maintained during these announcements.
Related Terms
Profit and Loss Account
The financial statement summarizing revenues, costs, and expenses over a specific period, clearly outlining a company’s profit or loss.
Balance Sheet
A financial statement providing a snapshot of a company’s assets, liabilities, and equity at a specific point in time.
London Stock Exchange (LSE)
One of the world’s largest stock exchanges based in London, where shares of publicly held companies are issued and traded.
Investment Analysts
Professionals conducting research and analysis of financial securities, providing investment recommendations based on their evaluations.
Financial Reporting Council (FRC)
An independent regulator in the UK promoting high-quality corporate governance and financial reporting.
Online References
- London Stock Exchange Official Site
- Financial Reporting Council
- Investopedia - Financial Reporting
- Investopedia - Income Statement
Suggested Books for Further Studies
- Financial Reporting and Analysis by Revsine, Collins, Johnson, Mittelstaedt
- International Financial Reporting Standards (IFRS) Workbook and Guide by Abbas A. Mirza
- Accounting: Tools for Business Decision Making by Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso
- Essentials of Financial Analysis by George T. Friedlob, Lydia F. Schleifer
Accounting Basics: “Preliminary Announcement” Fundamentals Quiz
Thank you for diving into the intricacies of preliminary announcements, a vital component of corporate financial reporting. We hope this guide and quiz enhance your understanding and appreciation of this critical accounting term!
