Module 04 Discussion – Earnings Estimates

Investors typically rely on current Earnings per Share (EPS) figures when trying to predict future company earning potential. However, EPS have some serious flaws, some of which are related to estimates used in the closing process at year end.

Explain what type of estimates accountants might use and why they might use them when reporting year end net income for a firm. How does the use of estimates impact estimated future earnings of a firm? Give an example to illustrate your points.