Regulators don't mandate profit forecasts, but they can be in a company's best interests.


Q: Are companies required to give earnings guidance?

A: Each quarter, investors and the Wall Street analysts that cover them play a game of expectations.

Wall Street analysts are in charge of studying a company's fundamentals and estimating how much the company is going to earn. The process can be tricky because there are so many variables, which also differ from industry to industry.

In order to make things a bit more predictable, some companies provide guidance to investors — including research analysts — about their revenue, cash flow and profits. This earnings guidance is typically included either in the regulatory filing and press release that accompany a company's earnings announcement or, more commonly, discussed on a telephone conference call with investors and analysts on the day quarterly earnings are released.

It's pretty common for companies to give analysts and investors guidance since it's usually in their best interests. If analysts' forecasts get overly optimistic, a high bar for companies to jump over is created. If companies can guide down a bit the expectations of analysts and investors, an easier hurdle to beat is established. Shares of stock often jump when a company reports earnings that exceed expectations.

But by no means are companies required to give guidance. Some companies, such as Internet giant Google and Warren Buffett's Berkshire Hathaway investment vehicle, have long made it a policy not to issue earnings guidance. Companies, too, must be very careful that if they do give guidance on their earnings that it is made available to all investors at the same time, not just to Wall Street institutional investors and research analysts.