Historical vs Forecast Earnings

Most assessments of value refer to the term "Future Maintainable Earnings" but does that mean that forecast earnings are a better indicator of value than historical earnings?

The above rules apply just as easily to Forecast Earnings as they do to Historical Earnings.  Typically, Forecast Earnings can be very unreliable.  Even large organisations and listed public companies with teams of accountants and other experts often misjudge forecast earnings!  So as a basis for assessing smaller businesses, it is highly recommended that you rely mainly on proven historical earnings and use any forecast provided as a basis for evaluating the future risk and growth opportunities in the business.

Refer to our Guidance Notes on Valuation Methodologies for more detail about what to do once you have clarity on the Business Earnings and dont hesitate to Contact us for more information or assistance on Understanding Business Earnings.