Visibility: What it is, How it Works, FAQ

What Is Visibility?

"Visibility" is the extent to which a company’s management or analysts can estimate future performance. It can range from low to high or from the near term to the long-term.

Executives or equity analysts talk about visibility in terms of sales or earnings. Management may comment on visibility in press releases, earnings conference calls, or at investment bank-sponsored meetings or conferences. Analysts discuss visibility in research reports with clients to help them make investment decisions.

Key Takeaways

• Visibility describes a company’s ability to estimate future performance.
• Visibility ranges from high to low or from the near-term to the long-term.
• High visibility instills confidence in projections, while low visibility indicates uncertainty.
• The state of the economy affects visibility; high during strong economies and low during tough times.
• Visibility assists investors in making investment decisions.

Understanding Visibility

Visibility occurs when a company’s executive team or market analysts make predictions about its future earnings or sales figures. Having visibility indicates that the management team’s processes are followed by the rest of the team.

Companies perform better when management has high and full visibility. High visibility means they are confident in their projections. Low visibility means the opposite; their confidence is low. Low visibility primarily occurs during a shift in the economic cycle or changes in the market.

Executives prefer not to discuss low visibility, as it may make investors feel uneasy. However, it may be necessary for management to set reasonable expectations for the company’s stock. Management boasting high visibility should offer caveats to its optimistic outlook in case growth expectations are not met in the future.

Visibility is categorized as high or low. High visibility indicates confidence in predictions, whereas low visibility implies uncertainty for future performance.

Expressing Visibility in Time

Visibility can also be characterized by time. It can cover the short-term, such as a single quarter, or the long-term. It may even refer to a specific interval, like "from now to the end of the calendar year."

A company with low short-term earnings visibility may be questioned if a competitor has high short-term visibility. A company with strong earnings visibility over the long term is regarded favorably by investors. An analysis of the reasons for this high visibility would help investors understand a company’s business model better.

The Economy’s Effect on Visibility

The amount of visibility for a company depends on the state of the economy. In stable and growing economies, a company may have high visibility to confidently project sales or earnings.

However, in weak or uncertain economies, a company will likely have low visibility. During uncertain times, a business refrains from providing sales or earnings guidance to analysts and investors.

Low visibility does not necessarily reflect negatively on a company if its core operations are still a good investment. If the company has the ability to ride out the economic downturn, it could still be a positive investment due to its strong fundamentals.

In some instances, a company can see a clear path for business growth, regardless of the economic environment. This is particularly true when the organization is launching or ramping up deliveries of products with solid demand.

Visibility vs. Transparency

Visibility should not be confused with transparency. The two terms are often used interchangeably, but they are different. Visibility involves projecting a company’s future performance, while transparency describes the accessibility of information by a company and its management team.

A company is transparent when it openly provides financial information, such as reports, prices, and production practices to shareholders, employees, or the general public.

What Does Visibility Mean?

Visibility is the extent to which a company’s management or analysts can estimate future performance. It is a key aspect of management and is required for businesses to improve their operations.

How Do Businesses Gain Visibility?

Businesses gain visibility by paying extreme attention to all numerical data. This includes keeping receipts, logging expenditures, using exact numbers, and practicing proper and timely bookkeeping.

Why Is Visibility Important in Business?

Visibility ensures that businesses have the greatest understanding of their financial situation. It allows businesses to accurately assess their short-term and long-term financial status, resulting in more accurate projections and financial models.