How Do You All Make Revenue Forcasts?

[adios]

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Change "revenues" to "cash profits" and you're right. This type of thinking is explored in a more in depth way in Rappaport & Mauboussin's book Expectations Investing.

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Ok but "cash profits" are at least highly dependent on revenues. Thanks for the book recommendation. Probably won't get around to reading it until after the 1st but I will get around to it.

[buffett]

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"cash profits" are at least highly dependent on revenues

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Consider Wendy's:

Year Revenues Operating Profit
1999 $1,603 $278
2000 $1,712 $267
2001 $1,819 $234
2002 $2,010 $263
2003 $2,191 $264
2004 $2,433 $272

(figures exclude Tim Horton's, Baja Fresh, and other ancillary brands, source: Trian's recent 13D)

[adios]

I understand your point but if sales went in the dumper earnings would be less. Therefore sales forecasts are most definitely part of the earnings picture. Put another way if you expected lower profit margins but forecast increased sales that resulted in flat earnings over a period of time, if the sales came in much less than anticipated, earnings would decline substantially.

[buffett]

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sales forecasts are most definitely part of the earnings picture

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Yes, but your question was regarding variant perceptions from Mr. Market. And Mr. Market, bipolar though he is, at least attempts to make his judgments based on cash flow. Revenues, assets, and other things are all variables in the equation, but in aggregate Mr. Market's regression model is most dependent on cash flow.

[adios]

But those estimates are based on perceptions of future revenues.