The share price of Acme Manufacturing Limited fell approximately 4% on the day it announced a record profit (up 30% on last year). On the same day, the ASX200 index increased 0.5%. Discuss the significance of market expectations of performance and the challenges companies face in this regard. The value of a company's shares in the market is based upon the intrinsic value of its assets and the market expectations of the performance of those assets The market may be biased (positively or negatively) and may hold false expectations The returns to shareholders depend primarily on changes to expectations more than the actual performance of the assets The challenge is to manage market expectations to a level that will be close to actual performance This involves regular communication with the market in terms of asset performance and constant engagement with the market to understand their prevailing expectations In the Acme illustration, the 4% share price fall (even though the company reported a record profit) indicates that the market expectations for profit were much higher than the announced 30% increase - and the prevailing share price (pre announcement) had factored in this expected information - within this context, the market was disappointed and hence the share price fell and note that the significant change in Acme share price cannot be explained by market movement (which increased 0.5%) The share price of Acme Manufacturing Limited fell approximately 4% on the day it announced a record profit (up 30% on last year). On the same day, the ASX200 index increased 0.5%. Discuss the significance of market expectations of performance and the challenges companies face in this regard. The value of a company's shares in the market is based upon the intrinsic value of its assets and the market expectations of the performance of those assets The market may be biased (positively or negatively) and may hold false expectations The returns to shareholders depend primarily on changes to expectations more than the actual performance of the assets The challenge is to manage market expectations to a level that will be close to actual performance This involves regular communication with the market in terms of asset performance and constant engagement with the market to understand their prevailing expectations In the Acme illustration, the 4% share price fall (even though the company reported a record profit) indicates that the market expectations for profit were much higher than the announced 30% increase - and the prevailing share price (pre announcement) had factored in this expected information - within this context, the market was disappointed and hence the share price fell and note that the significant change in Acme share price cannot be explained by market movement (which increased 0.5%)