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The Role Of Analysts~ Earning Forecasts In The Valuation Process: An Introductory Overview

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Executive Summary

This paper explains how analysts' earnings estimates (issued early in a fiscal year) affect the valuation process, illustrating key concepts with analyst forecast data. To derive estimates of future earnings, analysts observe historical performance (using accounting data) and adjust for changing conditions. The empirical results in this paper reveal that while analyst forecasts are imprecise point-estimates of future earnings (a well-known result), these estimates can help investors distinguish between firms most likely, and least likely, to experience a large earnings change.

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