A Forward Looking Statement refers to projections companies make to communicate their views or opinions of specific future events. Such statements cover financial information or outlook in line with securities laws. Since it is a projection, it contains expressions like expect, believe, plan, anticipate, could, potential, intend, possible, may, etc.
Such future-looking information is commonly found in financial reports, earnings calls, or other corporate communications to offer insights into a company's perspective. However, these statements involve risks as they do not guarantee or promise fulfillment. Moreover, the actual results may vary. Neither are they based on historical data nor related to current facts and therefore, they lack reliability.
A forward looking statement is often released by publicly held companies with a verbal or written communication related to crucial business information projecting future events, outlooks, collaborations, or other endeavors. These statements communicate the management's viewpoint, vision, opinion, or beliefs, but they do not give assurance/s of specific outcomes. Therefore, companies usually include cautionary language or terms like may, could, possible, plan, intend, etc., to notify investors of uncertainties or non-compliance risks.
These statements assist organizations in formulating future goals and strategies, facilitating effective long-term planning. They serve as valuable tools when used alongside other indicators to provide investors with insights into a company's vision, potential risks, and growth prospects. This futuristic perspective fosters clear communication, allowing management to share its expectations and aspirations with stakeholders.
Further, they foster innovation and boost a company's ability to adapt to changing market conditions. Moreover, organizations can proactively address present potential challenges and uncertainties through forward looking statements.
The fact that these statements are uncertain indicates the risk of adverse results. Companies may face legal consequences if actual results significantly deviate from the projections made in future-looking statements. Hence, they include a disclaimer about the chances of variation/s in actual results. This is done to highlight that these statements contain predictions and involve inherent uncertainties.
Moreover, such statements, if they stand false, may result in stock price fluctuations due to investors' dissatisfaction with poor outcomes. Sometimes, while framing such information, the management becomes overly optimistic, projecting unrealistic expectations.
Another facet of these statements that requires attention is the risk of revealing too much. If a company shares detailed information through these statements, it runs the risk of allowing its competitors to frame strategies to win the market.
Organizations use forward looking statements when discussing future expectations, projections, or plans related to business, finance, or investments and communicating the said observations or estimates to stakeholders. Companies often incorporate such information into financial reports, earnings calls, or official statements to offer insights into their prospective developments.
Given below are some situations where future-looking statements are employed.
Other than the situations discussed above, future-looking statements can be used for various other endeavors, including crisis management, public relations, etc.
The use of forward looking statements in business scenarios has already been seen above. In this section, let us use a few examples to elaborate upon and explain the concept in greater detail.
XYZ Ltd. expects substantial growth in the upcoming year, 2024, driven by strategic initiatives such as the introduction of innovative products and partnering with industry giants. To communicate this, it drafts a forward looking statement in its presentation to potential investors. However, this optimistic outlook is contingent on a favorable market environment.
The company uses cautionary language and includes words like expect, possible, could, may, anticipate, and believe to clarify that these projections are not guaranteed and are subject to change due to various factors. Also, XYZ Ltd. is committed to transparency and plans to provide timely updates pertaining to any adjustments made to these statements later.
Safe Harbor Statement, under the Private Securities Litigation Reform Act of 1995, refers to a legal provision that insulates companies from potential lawsuits arising from incorrect projections.
The presentation articulates forward looking statements related to the merger between a company subsidiary (S&P Global) and IHS Markit, outlining management's projections for future events. The language used in this presentation involves words such as anticipate and expect, covering various aspects like economic conditions, business strategies, and the consequences of the said merger. Risks that stakeholders must consider include global uncertainties, post-merger disruptions, regulatory changes, market volatility, and potential disasters.
The company emphasizes the dynamic nature of its business environment and advises caution in relying on these statements. It commits to ongoing updates and directs readers to the US Securities and Exchange Commission (SEC) filings for a comprehensive understanding of factors affecting its operations, including the risk factors detailed in its latest annual and quarterly reports.
As Meta discloses its future outlook and projected financial performance for 2024 in the third quarter earnings report, 2023, it supports its projections with a forward looking statement.
The statement throws light on the company’s business plans and expected outcomes. It includes a disclaimer to ensure stakeholders understand the risks involved in depending on these statements. The statements touch upon matters like new products, brand image, privacy, content reviews, and data protection, among other important developments or changes.
Crafting a promising and reliable forward looking statement is quite tricky. However, given below are some tips to write one that balances optimism and a realistic acknowledgment of uncertainties.
Private companies are not mandated by law to include forward looking statements, unlike publicly traded firms.
2. How to find forward looking statements?Such statements can be found in company reports, financial statements, and press releases, in sections detailing plans, goals, or projections.
3. What is the safe harbor for forward looking statements?The forward looking statement safe harbor is a legal provision that shields companies from liability when expressing expectations about future events. It is granted if companies act in good faith, disclose relevant risk factors, and include meaningful cautionary statements regarding uncertainties. The Private Securities Litigation Reform Act of 1995 governs such provisions in the US.
4. What is a standard disclaimer for forward looking statements?A standard disclaimer is -This document includes forward-looking statements that involve inherent risks and uncertainties. These statements are established on current expectations, estimates, forecasts, and projections about future events. They are subject to various factors that could deviate actual results materially from those expressed or implied. The Company disclaims any obligation to update these statements. Investors are cautioned to consider the inherent risks and uncertainties before making any investment decisions."
This article has been a guide to what is a Forward Looking Statement. Here, we explain the concept along with its examples, when to use it, and how to write it. You may also find some useful articles here -
