Alternative Performance Measures: Sorcery or Valuable information?

Abstract

This thesis is an empirical study into the use of alternative performance measures (APM), in Danish public trade companies. The study´s analyses, is based on annual reports from ten companies, two interviews with professional Share analysts, and an interview with one Consultant Specialist. This thesis sets out to uncover the quality of the use of APM primarily referring to the European Securities and Markets Authority (ESMA) guidelines. Furthermore, the thesis explores the use of special items. To achieve these goals, the thesis applies primary qualitative methods through interviews, as well as quantitative methods for data collection from public trade companies’ annually reports from the fiscal years 2018, 2019, and 2020. The focus of the data collection is on the letter from the Chairman and the CEO, financial highlights, and key figures and financial ratios. Furthermore, the thesis applies secondary data from other studies to raise the validity of the primary findings of the thesis. The study found that the alternative performance measures such as EBIT, EBITDA and Free Cash Flow are important parameters to assess a company. These performance measures give the management the tools to tailor a financial report to their needs. however, it is not without issues that the board has such free options in the way it reports alternative performance measures. The regulation on this area is very limited in the Danish system, and there is not much concrete regulation in the international financial standards issued by the IASB. The main source of regulation of the use of alternative performance measures, stems from ESMA. These specific guidelines are meant to improve the way management communicates information to the user of the financial statements, by focusing on the quality of the reported APM. The thesis found that the communication of the APM´s is not done in the most expedient way, regarding the users of the financial statements. The use of special Items is reported by almost all the included companies in the study. Furthermore, the majority has to a greater or lesser degree, adjusted APM’s included in their annual reports. But the way special Items are being used in the different annual reports is in no way expedient for the users of its financial statements. This is due to the fact that costs are being placed under special items, though they do not belong here.