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Arguments for & against financial earnings projections

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Suppose that Jimmy Cliff, a financial writer, recently stated that "there are substantial arguments for including earnings projections in annual reports and the like. The most compelling is that it would give anyone interested something now available to only a relatively select few - like large stockholders, creditors, and attentive bartenders."

What are some arguments for and against providing financial earnings projections in your opinion?

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Solution Summary

Your discussion is 667 words and gives two pros and five cons and an overall recommendation.

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Providing earnings projections would be a huge leap in financial reporting and would put the preparer in the role of the analyst. This has some pros and cons but the cons are overwhelming.

First the pros.

The reader is usually trying to estimate future cash flows from the reports. The concept statements issued by the FASB admit that this is a main goal of the financial statements. That is, to signal future cash flows by providing information about past performance and current resources and obligations. So, providing estimated future cash flows would make it easier, presumably, for the reader to reach that goal.

Management already has these projections, perhaps far into the future, as they use it for strategic planning. So, why not share it? They are aware of initiatives and changing assumptions that make past performance a poor indicator of the future and so this would give the reader a much clearer idea of how to understand the most likely future results.

Now the cons.

Future cash ...

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