FI.Chapter4 - * sou(es Adopred r,om loreph M.coffo.t...

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Unformatted text preview: * sou(es Adopred r,om loreph M.coffo.t Gudan.e tre Crq lln 2006, 16,17, oid w tom F coffn ond crc.ter cous.n, 'lsEornnssGudameD$ppeoriq n 200o, 2006 wh b Poper ovoiab c or hfip://w.c.sii.om/(.snlwhiE pope6/#f/Edmings %20cuidone7J02006.pdt. Analysis e Fireenciai Statec$ente o guidc or not to guide, that js thL' question. Or at least it's the questi(r many companies are wrcsiling with re8arding eaflrings forccasts. Should a coDr' p,rn) t"otiLle..rnrrt.,.lirn.,r( \ lo in\ e-rL,r-' In 2006, Best Buy ansn'ered this question by announcing ihat it wol d no longer providc qu-rl, rl\ e.rflrurF. fore. r-l-. ll. n. .oirci- dcncc that Best B y's d(]cisi(nr camc shortly alter its actual eamhgs canc in just 2 cents below the forccasi, yet its sn)ck price fcll by 127,. Coca-Cola, Motorola, irld Citi$oup arc among the Browing number of.(rrpanies that no k)nger providc qliafte v enrnings forc.nsls. VirlIally r)o.'ne oi.plrc- (h.rt i,rv(.h,r. nceLl as rnuch irfonnation as possible to accu r,rlul\ e\!lu.,t, .r ,ornfdr,I. ,)nJ d,.rdcn':, studies shor'\' thai companics rvith grealer ransparncyhave higher va[rn ttuns. Ho{,ovet grcatcr disclosurc often brings the possibility of lau'suits if iivestors havo rcason to bcliovc that the disclosure is fraudulcnt. The Prn'ate Sccurities Litigation ltefor Act of 1995 helped prevent "frivolous" ln{'suits, but still, befonr 2000, many companies prcvided c;rrn- hgs inf{)rmafion k) brokeragc firms' analysts, and thc analvsts thcn forecast thcir own earn ings cxpectatjors. ln 2000 thc SEC adopied Reg IrD (Regulalnrr Fair Disclosure), which prev, nt.rl comf.rnr. trorn,lirlorrrg in(,r mation (r1ly to select groups, such.rs analysts. Reg IrD led many corlpanics k) bc'tin proviri jng qu.rterly carnings forecasls dircctly to thl] public, and a suNc'y by the Nati(,1a1 Invcsbts Relati(nis tnstituie showed that95% ofrespon Jtsnt. in 'n.rh l'^viLl((l p i | | | , . r . | | I I I I I d I or q .rr terly enrnings forccnsts, up lrorn 45% in 1999. Tr\,o lrends are no\a' in evidc'ncc. First, nre numbcr ol companics reporling quartefly eamings forecasts is fnllinj, bLLt the number reporting arlnunl turecasts is increasinB. Second, Dranv coDpa jes are prov hg othcr iypes of fonvardlooking nrform.rtion, incl(d- nrg kcy operatbg raitus pltls qralitntive hfor- mation about the cornpany ancl ils industry. Ratjo.nalvsis can help jlv{rstors use such information, so kccp that in mind ns you read this chnpter. Liquidity Rorios 123 Fhancial statement antrlysis involves (l) comparing the filDr's performance with that of other firms in the same industry and (2) evaluating liends in the finn's fhancial position oi'er time. This anilysis helps managers identify deficiencies and then take actions to improve performance. Thc rerl value of fiunciai statcmcnts lics in the fact that thcy can bc uscd io hclp predict future amings, dividends, and ficc cash flo{,. From an invc.stor's siandpoint, prcdi.li,iq lrcrlt,rfu is what finrnchl stntcntnt alnlltsis...
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FI.Chapter4 - * sou(es Adopred r,om loreph M.coffo.t...

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