Analyst forecasts may not take into account the distribution, particularly the skewness, of potential outcomes. A forecast of the most likely profit can significantly differ from the more relevant probability weighted expected value. Whether a forecast is a mean or a mode is also important in financial reporting. Most IFRS standards, including IFRS 9 regarding loan impairments, require a probability weighted expected value; however, this is not universal. In some cases, such as IAS 37 regardi...| The Footnotes Analyst
Differences in adjustments to the share count related to special dividends and demergers can impair the comparability of earnings per share. Under IFRS, EPS growth depends on whether a stock consolidation accompanies a distribution. However, stock consolidations, by themselves, have no economic impact and should not affect performance metrics. In Vivendi’s recent distribution of shares in Universal Media Group, the lack of an accompanying stock consolidation resulted in a discontinuity in p...| The Footnotes Analyst
Investors are paying increased attention to risks and opportunities arising from sustainability related issues, particularly the effects of climate change and related ‘net-zero’ commitments made by many companies. Some sustainability risks directly affect financial statements, but you need to look further when considering inputs for equity valuation. Risk affects different aspects of equity valuation. It is well known that risk factors affect the discount rate, but the impact on other val...| The Footnotes Analyst
Although we generally prefer an enterprise value based approach, earnings and price earnings ratios remain an important and legitimate component of equity analysis and valuation. Earnings based analysis includes the earnings per share enhancement or dilutive effects of major transactions. We discuss the value relevance of earnings enhancement or dilution arising from new capital bring raised and invested, with a focus on rights issues. In an earnings-based approach to analysis, it is importan...| The Footnotes Analyst
