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Chapter 6. Growing Mushrooms: The Art of... > Red Flag 7: If a Company Has Had a H...

Red Flag 7: If a Company Has Had a History of Over-Optimistic Forecasts

When companies issue their quarterly results, they often give indications about what they expect sales and profits will be like for the next period, whether a quarter or longer. If companies have a history of hyping their prospects and missing their own forecasts, be wary. Also, companies that say they really can’t forecast what is going to happen in the next year or that offer a wide range for their projections may be more trustworthy than the guys who firmly predict a fixed percentage growth. The reason is that the latter are more likely to get up to tricks with their accounts to meet the target. An increasing number of companies, including Coca-Cola and McDonald’s, are declining to produce earnings forecasts.


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