Vijay Govindarajan, Shivaram Rajgopal, and Anup Srivastava: Why We Need to Update Financial Reporting for the Digital Era: "The market caps of just four companies, Apple, Alphabet, Amazon, and Microsoft, now exceed $3 trillion...

...Their combined assets of $944 billion are an order of magnitude lower than the combined assets of $7,700 billion of the largest 3,177 companies in 1986, when the aggregate market capitalization reached $3 trillion for the first time.... We interviewed several chief financial officers (CFOs) of leading technology companies and senior analysts of investment banks who follow technology companies. We asked: (i) what makes the valuation of digital companies more challenging?; and (ii)  how can digital firms improve their financial reports to communicate sources of value creation in their businesses? We distilled seven key insights from those discussions.  Some of these ideas contradict traditional financial thinking whereas others seem highly controversial or pessimistic...

As digital technology becomes more pervasive, more and more companies will present this sort of valuation challenge. Given that even sophisticated investors cannot estimate the value of these companies, CFOs question the ability of a day trader to value a digital company. Therefore, companies see little value in disclosing the details of their current and planned projects in their financial disclosures, even if those disclosures can reduce the information asymmetry between investors and managers.... The time has come for investor bodies and companies to rethink the financial reporting model from scratch...


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