Forecasting

Involves trying to work out what will happen in the future - a good starting point is to work out how things might change from what you currently observe. Here's an article that describes how analysts expect earnings to decline going forward.

John Durie highlights the problems in going from profits (largely capturing what has happened) to market price (capturing what the market expects to happen).

CORPORATE Australia is in a lot better shape than the stock market would indicate, but then that's due in part to the fact that the market is trying to predict a very uncertain future and that the profit results are yesterday's news.

Certainly, the numbers from high-profile companies released over the past week have done much to calm nerves, as shown by the dramatic turnaround in Wesfarmers' stock price yesterday from a 2.7 per cent fall to a 5.3 per cent rise in a matter of minutes after the release of its results.