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Last year saw a massive rise in the number of profit warnings. This highlights the issues facing firms using traditional budgeting processes, writes Richard Barrett.
As 2005 gathers momentum, what lessons can we learn from such an unpredictable year for trading as 2004? Quoted companies in the UK issued 40 per cent more profit warnings last year than they did in 2003, according to Ernst & Young's latest analysis. Those that issued a warning saw their share price tumble by an average of almost 13 per cent during the next day's trading.
Companies have blamed this unprecedented increase on "difficult trading conditions" or "sales falling short of forecasts". But perhaps it is more about poor forecasting. The third annual Reforerasling Report. commissioned by ALG Software, found that the annual budgets of 95 per cent of respondents went off track in 2004. Almost half said that this...