What is a profit warning?
This is when a listed company alerts its shareholders that its profits will not meet previous expectations. The warning is normally issued shortly before the figures are released to the public.
Where have you heard about a profit warning?
If you are a shareholder, you may have received a profit warning about a company you have invested in. Otherwise, such warnings are frequently covered in the financial media, especially when it concerns a large multinational.
What you need to know about a profit warning.
The aim of a profit warning is to help prepare investors for bad news, and allow them and the wider market to adjust accordingly. However, the nature of these warnings can also vary. It may just refer to the fact profits are slightly down on the same quarter last year, for example. However, it may also mean that profits have declined significantly, with the company even potentially making a loss. This often has a negative effect on the firm's share price. If no warning is issued before a negative set of results, the announcement is called a negative earnings surprise.