Guidance

Definition:

It is increasingly important for firms to meet or exceed analysts' consensus earnings forecasts. Often management will give guidance or hints of the earnings per share prospects over the next quarter or next year to try to direct the consensus to what is achievable. For example, it is possible that the consensus is well above management's internal forecasts. Management will try to guide the consensus downwards so that when the earnings are released the negative surprise is minimized. Under Regulation FD, management needs to be very careful to provide guidance information to all shareholders -- not just a select group of analysts. This is often achieved in investor presentations (that are often webcast) or conference calls (where anyone is allowed to dial in).

Investing Essentials


Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

Term of the Day

Deferred tax expense

A non-cash expense that provides a source of free cash flow. Amount allocated during the period to cover tax liabilities that have not yet been paid.

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