Customer Equity: An Integral Part of Financial Reporting

Abstract

Recent initiatives demand information that supplements and complements a firm's financial statements to bridge the gap between financial statement capabilities and financial reporting objectives. Such information assists investors' decision making by explaining the main trends and factors that underlie the development, performance, and position of the firm's business. Firms that aim to increase the value of their customer base should report forward-looking customer metrics because such reports align customer management with corporate goals and investors' perspectives. The authors propose a means to report customer equity that enables investors—the “consumers” of financial reports—to monitor firms' performance with respect to their customer assets. Furthermore, they develop a specific model for Netflix and apply it to quarterly data from September 2001 to September 2006.