John Right, an analyst with Stock Pickers Inc, claims: "It is not worth my time to develop detailed forecasts of sales growth, profit margins, et cetera, to make earnings projections. I can be almost as accurate, at virtually no cost, using the random walk model to forecast earnings.". What is the random walk model? Do you agree or disagree with John Right's forecast strategy? Why or why not?
We don't agree with John. According to the random walk model, the forecast for year t + 1 is simply the amount observed for year t. The random walk model only describes the average firm's behavior. Random walk model may not be applicable to those firms that erect barriers to competition and protect margins for extended periods. The art of financial statement analysis requires knowing not only what the "normal" patterns are but also how to identify those firms that will not follow the norm. This can only be done if the analyst performs a strategy analysis.
You might also like to view...
In the case of an ordinary lease, if the lessor is a merchant, the risk of loss remains with the lessor even after the lessee receives the goods
Indicate whether the statement is true or false
Which one of the following techniques is not a mathematical programming technique?
A) linear programming models B) transportation models C) analytical hierarchy process D) integer linear programming technique
Hilliard Company, a small consulting firm, charges all of its operating expenses on Accounts Payable. On January 1, Year 2, Hilliard's Accounts Payable balance was $26,500 and, during Year 2, an additional $137,000 of operating expenses were charged on account. On December 31, Year 2, the Accounts Payable balance was $57,300. What is the amount of cash paid for expenses during Year 2?
A. $167,800 B. $106,200 C. $163,500 D. $79,700
In the context of grit, the commitment to long-term goals through purposeful deliberate practice is called ___________.
a. resilience b. excellence c. conscientiousness d. perseverance