NISM Certifications · NISM-Series-XV: Research Analyst · Fundamentals of Research
A research analyst states that a company's earnings per share will grow at 12% because 'the management has guided so'. Which is the best research practice to treat this input?
The analyst should clearly label the guidance as management's claim and validate it against historical performance and industry trends. Good research distinguishes facts from opinions and does not accept projections uncritically, nor discard them entirely without analysis.
- ATreat the guidance as a fact and cite it as the sole basis
- BDistinguish it as management's claim and test it against historical data and industry trendsCorrect
- CIgnore the guidance entirely as management is always biased
- DReplace it with the analyst's personal preference for growth
Explanation
Good research separates facts from opinions and estimates, and verifies management statements against independent evidence. Relying solely on guidance is uncritical, while ignoring it entirely discards useful information.
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