This document provides a 6-step strategy for investor relations professionals to effectively communicate their company's story to Wall Street analysts and investors. The steps include: 1) Understanding analysts' focus on financial metrics and multiples; 2) Preparing a 2-page research report with key financial data; 3) Calculating common stock valuation multiples; 4) Explaining the relevance of multiples for the company; 5) Discussing cash flow metrics important to investors; 6) Distributing the report directly to targeted analysts and portfolio managers. The overall aim is to tell the investment story in the language of numbers that Wall Street understands.

1. Nat ional I nvestor Relat ions I nstitute
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The Voice of the In vestor Rel atio ns Pr ofe ssion since 1970
IN VESTOR R ELATIONS
T aking It to t he S tre et
By Deirdre Skolfield, CFA
Y
ou’ve got a gre at Web site, well- scripted c onfer- You n eed to commu nic ate your sto ry to W all Stre et
ence ca lls and a t op-no tch corp orate c ommuni- and the dep leted a nalyst cor ps, es pecially if your c om-
cation program. You’ve worked with y our com- pany is one of the almost two- thirds of the more th an
pa ny’s legal c oun sel to c over all the Reg FD a nd 12 ,000 U .S. pub lic c ompan ies w ith no sell-side cover-
Sarba nes-O xl ey b ases, a nd you ret urn c alls f rom t he age. And y ou need to spe ak to inv estors in t he la nguage
pub lic p romptly. Your c omp any has solid fina ncial f un- they un ders tand. As p art of a new breed of IR profes-
d amen ta ls a nd a com pelling sto ry. B ut tha t’s n ot s ion al s, you m ust he lp inv est ors di ffere ntiate your com-
enough, neces sar ily, to get t he atte ntion of the in vest- p any by selli ng the num bers behind the story.
me nt commu nity.
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2. C O RPO RATE
CO M MU N I CAT I ON
A 2002 survey of sell-side analysts and buy-side s tanding a nd fl oa t, share holders’ eq uity, ca sh, long-t erm
inv est ors by Th oms on Fi nancial found t hat the two debt, net working ca pital and di vidend, if app lic ab le.
mo st common mistakes made by comp ani es mark eti ng I nclude the l ast few ye ars’ repo rt ed n umbe rs and a ny
t hems elves to the Str eet w ere “t oo much focus on mar- published guidance on rev enues and ea rnings per sha re.
keting and hype” and “ failure to a ddress sp ecific finan-
A c ompany pr ofile, includi ng cust omer base .
cia ls.” Both buy- a nd sell-side analy sts ranked earnings
and cash flow metrics as the most important measures Dif feren tiato rs from peer c ompanies, such as cus-
of val uat ion. tomer size, product line, ma rket ni che, pr icing strategy,
c ost str ucture, ope ratio nal ef fic iencies, m ana geme nt
T hat means that you, as IRO, need to communicate focu s, etc. If your comp any has a miss ion stat emen t,
c erta in fina nci al m etrics as p art of a c lear and focus ed i nclude it in t his sec tion.
story. The fo llowi ng six- step strate gy provides signifi- A fina ncial s umm ary. Use t he latest earnings
cant ke ys to su cces sfully c ommunic ating your co mpa- re lease on rev enue g row th and op erating pro fits. If
ny’s story in the la nguage analy sts and investors speak: you give rev enue and ear ni ngs guid anc e, incl ude the
1
Understand the analyst’s mind. To begin to dr ivers b ehind this grow th.
speak a new language, find o ut how an aly sts and Market mul tiples (s ee S tep 3 b elo w).
inv est ors ev alu ate comp anies in yo ur s ector. The
va st majo rity of buy- a nd se ll- side a n aly sts a nd po rtf o- A s ummary of y our re cent announc ements.
lio m anagers a re Charte red Financial Analys ts who are A clear st at ement th at the repo rt was w rit ten
ha rd-c oded by rig orous tra ining to delve st raight into by the company, inc luding standard Safe H arbor
the n umbers — multipl es a nd cash flow valuations. d isclaime rs.
3
Retail investo rs m ay react to a press release on a new
Do the math. An e asy appro ach to a meani ng-
c ontr act or produ ct announ ce ment, but W all Stree t
ful equity valuation (and typ ically included in
w ill w ant to und erstand its fi nanci al impact on c ash
research re ports) is the calculation of market
f lows and earni ngs gro wth.
multiples. C ompute your co mpa ny’s stock p rice as a
Learn what buy-side manage rs
mul tip le of earni ng s, bo ok value, sale s, c ash flow and
want by l ooking at ex isting Wall
ent erp rise val ue to EBI TDA, which takes d ebt i nto con-
Street research reports and finan-
sideration. EB IT DA is an imp ort ant b as is f or d ete rmin-
cial mod els on your c ompa ny as
ing the compan y’s a bility to produce pret ax c ash oper-
well as those of your pee rs.
ating pro fit.
Downloada ble re ports are av ail-
Using a spre ad sheet, compare your firm’s data to
abl e, for a fee, from Int ernet sites
your industry peers’ multip les, and update these num-
such as F irst Call, T homs onFN,
bers qu arterly. Include th ese m ark et mu ltipl es and
Ya hoo Fina nce and Multex. Or
Deirdre Skolfield comp ar ati ve fi gu res in your day-to-day comm uni cation
request research on your peers from
w ith the invest ment commu nity as w ell as in your
the ana lys ts w ho cov er yo ur s ector.
r esea rch r epo rt. T hese com parative market mu ltiples
2
Prepare a two-page company research report . are a quick wa y for buy- and s ell-si de a nal ysts to ga uge
If you h a ve no s e ll-si d e c o v e r a g e , th i s s t e p is how your company stacks up against companies they
critical. U sing the info rm at ion gathered in currently follow.
4
Step 1, and your c om peti to rs’ researc h repor ts as a
Make the numbers meaningful. Take your
mod el, p ut to ge th er yo ur o wn br ie f r e po rt. Include
basic report a step furt her and make the multi-
th e st a nd ar d c ompon en ts :
ples and comparative numb ers rel evant to
Basic stock infor mation, including ticker s ymbol, analysts in your i ndustry by shedding light on your c om-
exchange, recent p rice, 52- week ra nge, a verage d aily pa ny-s pecific particu lars. T he broad mar kets w ill always
vol ume, mar ket cap italiz ati on r an ge, di luted sha res out- react to fa ctors in the macro- environment, but company-
IN V ES TOR RELATION S upd ate AUGUST 2003 17

3. COR P OR A T E
COMMUNICATIO N
spe cif ic r ealities a re t he de termi ning f actor in the i nve stme nt Onl ine own ership da tab ase. Ac cess to buy-side c ontact
com munity’s buy and sell de cisions within a sector. dat abases su ch as BigD ough, IRC hannel and Shareholder.
For example, P/E ind icates ear nings g row th pote ntial co m can run as much as $1,000 per mont h, but it o ften is
rel ati ve to toda y’s ear ni ngs. Show what’s dri v ing your money well spe nt to i nc rease your comp any’s ac ce ss to the
company’s earnings gro wth potenti al. A capital mar kets. After you ha ve n ar-
hi gh P/B indi cates a prof itable niche, or rowed t he li st of buy- a nd s ell-si de a na-
high r eturns on e quity rel ative to cost lys ts a nd por tfolio ma nager s, distri bute
of capit al. O ffer insi ght into e ntry/ exit the rep ort to them al ong wi th your st an-
ba rrie rs in your in dustry and pric ing dard in vestor pac ket and inves tor p re-
po w er w ith sup pliers/cu st om ers tha t sen tat ions. Follow up vi gor ously with
may be driv ing your profit m argins. pho ne cal ls, ma king arr an ge men ts to
Let investors k now yo ur competitive m eet with these ana lys ts as appropri ate.
di fferentiators — what your ma nage- The six- step strategy might seem
ment t eam is doing to gr ow earn ings daunting at fir st, esp ecially if you don’t
and mi tigate ri sk t he c ompa ny’s earn- have a b ackground in fin an ce. Pre paring
ings stre am s. a resea rch rep ort, upd ati ng spre ads hee ts
5
and learning more about valuation met-
Ca sh flow is king . In addition
r ics can ta ke a lot of ef fo rt and v alu able
to m ult ip les, W all Street wan ts to talk ab out cash
time. But if you can tell a c ompelling story in the la nguage
flow v alu ation metrics, whi ch give inv est ors dee p-
the inv estment c ommunity und ersta nd s, you c an succ ess ful-
er, more meaningful insight into yo ur c om pany’s intrinsic
ly inc rea se e xpos ure for your c ompany’s stock. And th at’s
va lue and the prese nt va lue of fut ure c ash f low s.
what i t’s really all a bout . IRU
Begin with t he ba sic di vidend disco unt model and
req uir ed rate of return u sing the compan y’s w eig hted aver-
D eirdre Sk olfield, CFA, most rece ntly served as d irector,
age c ost of cap ital. The DDM can be mod ifi ed to the free
inv estor re lat io ns and corpor ate co mm uni catio ns f or
cash flow approa ch to e quity val uation. (Free cash flow
I nte liDa ta T echnol ogies. She can be reached at
is a po pular to ol used by the inv estme nt commun ity to
deirdre@localforce.com.
d etermine a c ompa ny’s relative value. This metric is a
s tra igh tforward c alcul ation of cash f low from o per ati ons,
minus capital expenditures and dividends.) Investors are
well aware t hat e ven though free ca sh flow is calcu lat ed
usi ng n um bers from the pa st, it tends to have a strong
relati onship to fut ure earni ngs. Include this critical inf or-
mation in your com municat ion wi th the invest ment com-
mu nit y, as we ll as in your research report, along w ith the
m ark et mult ipl es.
If you don’t w ant to reinvent the w heel, put the data
fr om your c ompany’s SEC fi lings into a s preadsh eet usi ng
t he stand ard formu las f rom e xis ting ana lyst rep or ts, since
they are already stre amlined to target the i nvestors in
your sp ac e.
6
Reaching the Stre et. Now that you’ve got a report
w ritten in t he lang uage an al ysts und ers tan d, it’s
t ime to do so me ta rgeti ng. Sell-sid e analysts’
names and con tact inf orm at ion are often list ed on peer
c ompany Web si tes, comme rcial databases or the N asdaq
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