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Saturday, July 31, 2010
Weekend Quote from a Book - The Trend of Future Earnings
In recent years increasing importance has been laid upon the trend of earnings. Needless to say, a record of increasing profits is a favorable sign. Financial theory has gone further, however, and has sought to estimate future earnings by projecting the past trend into the future and then used this projection as a basis for valuing the business. Because figures are used in this process, people mistakenly believe that it is "mathematically sound." But while a trend shown in the past is a fact, a "future trend" is only an assumption. The factors that we mentioned previously as militating against the maintenance of abnormal prosperity or depression are equally opposed to the indefinite continuance of an upward or downward trend. By the time the trend has become clearly noticeable, conditions may well be ripe for a change.

- Source: Security Analysis: Sixth Edition, Foreword by Warren Buffett (Limited Leatherbound Edition) (Security Analysis Prior Editions)

by Benjamin Grahim and David Dodd

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posted by Little Rishi @ Saturday, July 31, 2010  
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