3.3 Concept of Financial Guidance
The concept of financial guidance for a company should include the following elements:
- Objective and purpose: Why is guidance practiced or why not?
- Forecast values and key performance indicators that are used: To what extent are these an appropriate indicator for documenting the implementation of the strategy? The sales projections may be key, for example, for a high-growth company, while in a profitable company in a saturated market it may be the profit or cash flow instead.
- General conditions: Should the company’s own forecasts be related to exogenous factors such as market growth or exchange rates and, if yes, how?
- Time horizon: Guidance with what deadline?
- Communication: In what form and with what instruments is the guidance to be communicated?
- Decision-making mechanism: When and how is the guidance reviewed and, if need be, adjusted?