By Lisa Huang
The notion of communicating to investors is common among firms, but the Investor Relations (IR) profession emerged fairly recently. As a company goes public, Investor Relations practitioners serve as an essential bridge between the company and its investors. While doing an excellent job in IR can take time, here are six points an IR professional needs to know to lay the foundation of their work.
- What is IR?
The IR function only exists in publicly traded companies (e.g., companies listed on the New York Stock Exchange or NASDAQ) and combines knowledge from the law, finance, communication, and marketing. Being an IR professional means that a person always has to be honest, reliable, and compliant with national disclosure laws. An IR practitioner positions their personal and corporal reputation above all interests and should provide the company’s senior executives with the most recent and accurate information.
- What does IR do?
On a daily and monthly basis, an IR professional’s primary duties include reaching out to analysts and investors. Reaching out to analysts and investors helps Wall Street gain a better understanding of the company and draw reasonable expectations for its future growth. It also facilitates trust between investors and the company by allowing investors to make investment decisions based on the comprehensive information IR provides. Doing roadshows and research for future industry changes also helps the company attract more investments and stay at its top. On a quarterly and annual basis, an IR professional is responsible for long-term IR planning, the preparation of financial releases, company information packages, and annual reports, and the maintenance of the company’s IR webpage.
- Key IR Terms:
- Buy-side analyst: are analysts that work for investors, such as portfolio managers, to purchase assets from your company.
- Sell-side analyst: are analysts that work for the company by giving investment advice or making recommendations to other investors.
- Market Capitalization: Market Cap = Price per share X shares outstanding. This is often the indicator of a public company’s size. The larger the Market Cap, usually the larger the size of the company.
- Consensus expectations: This is the average of your company’s financial estimations and can be understood as a general expectation from Wall Street about the company.
- EPS: Earnings per share. EPS = Company’s Net Profit / Shares Outstanding. This is often the indicator of a company’s profitability. The higher the EPS, the higher the profitability.
- COGS: COGS stands for Cost of Goods Sold. It is the expense of what you sold.
- Assets: Assets are what the firm owns. Typically, a firm will gradually grow its asset and use its asset to generate more revenue.
- Liabilities: Liabilities are what the firm owes and needs to pay back.
- GAAP: GAAP stands for Generally Accepted Accounting Principles. This is the legal accounting requirement from the Security Exchange Commission to all companies in the US.
- EBITDA: EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. This is an indicator of the company’s operating performance. Essentially, EBITDA is the company’s net income with interest, taxes, depreciation, and amortization added back. EBITDA is a useful tool to evaluate the company’s performance because it excludes many factors that do not necessarily have to do with its performance. For example, tax changes from period to period and can impact the company’s net income.
- Enterprise value. Enterprise value = Market Cap – Cash + Debt. This is the indicator of the value of the company in the market. The higher the enterprise value, the greater value of the company.
- When Communicating with Wall Street
When communicating with Wall Street, IR professionals need to understand the company’s financial performance exceptionally well. When investors and analysts have questions, IR people can improve the Street’s perception of the company if they are knowledgeable about the company’s recent figures. At the same time, it is also crucial to keep the company as transparent as possible, maintain a shareholder base, and educate the company’s internal members on how to support the role of IR.
- Audience of IR
Although IR professionals primarily communicate with the audience in the financial world, the audience base is diversified. Externally, IR people communicate with the audience, including analysts, investors, media, and customers. Internally, company executives, management personnel, Board of Directors, and other employees are IR’s key audience.
- Communication Methods:
- Social Media: Social media such as Twitter or LinkedIn are excellent ways to promptly update your investors about the company’s recent information.
- Press Releases: Like PR professionals, IR professionals are also responsible for writing press releases for the company regarding its recent financial moves or information.
- Conference Calls: Conference calls are a form of telephone meetings among the company management, investors, and analysts. Conference calls will provide IR professionals with the chance to update investors and analysts regarding the company’s quarterly and annual performance and directly answer questions.
- Road Shows: Roadshows are a series of presentations of the company in various locations that contain potential investors. Roadshows are an excellent way to attract investments because IR professionals can communicate with investors and understand them more.
- Website: Many investors and analysts prefer to go to the company’s IR website for most information. The IR person’s responsibility is to keep the IR page updated with the company’s press releases, financial reports, stock prices, and the company’s mission and introduction.
- Formal Reports: Reports such as the quarterly report and the annual report are the one-stop-shop for investors and analysts to obtain any financial information and plans. IR professionals have cooperated with accountants and the company’s executives to ensure everything on formal reports is accurate and not misleading.
- Conferences: Investment conferences at luxury hotels in major cities worldwide can help an IR professional promote their company to more high-quality investors and attract portfolio managers to invest in the company.
If you are interested in learning more about IR, Boston University College of Communication offers a course that will help you be more prepared to become an IR professional. The course’s name is CM513 Investor Relations, taught by Professor Brian Norris, and the course contains the skillset one will need to do an excellent job in IR.