Profit warning

A profit warning is when a listed company announces that its profits are going to be significantly lower than the market currently expects.

Listed companies must notify the market in a timely manner of any major developments or information that would, if generally available, be likely to have a significant effect on the company's share price. These rules are meant to prevent insiders from gaining an advantage over other investors by having an opportunity to trade using price-sensitive information before anyone else gets to hear about it.

Some of the major events that need to be disclosed are obvious: mergers, legal decisions that go against the company, and any changes to top management. Another situation where the company may have to make an announcement is if management realises that its profits are going to be significantly lower than the market currently expects.

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