Why don't boards of directors try to produce results in line with estimates?
First off, some companies do something like this.  Microsoft for example was well-known for consistently hitting earnings estimates every quarter - nearly never missed them, and most of the time didn't exceed by much either.  In order to do this and not be prosecuted for accounting fraud, you typically have to be a service or nontangible good company (like Microsoft used to be) where you can manipulate the amount of product on hand and move costs fairly easily from one quarter to the next.  A company like, say, Home Depot or Caterpillar - both of which have tangible goods they're either retailing or producing - has less flexibility there, although they will still try to move profits around to match earnings estimates more closely. However, you have to be consistently doing well to be able to do this.  You can't manufacture additional total revenue; so if you have one 'down' quarter, you have to either have moved some revenue into it from the previous quarter, or you have to be able to move some into it from the next quarter.  That obviously doesn't work consistently unless you're a fast-growing company, or have an extremely stable base.  It's also hard to do this in a legal-seeming fashion - technically this sort of manipulation is illegal, so decisions have to be justifiable.  Companies (like Microsoft) that are expanding can also do things to encourage slightly lower expectations.  A company in need of a stock price bump issues press releases touting its inventions and products as amazing things that will drive profits through the roof and an aggressive profit forecast - just as easy to issue a press release with a conservative forecast, meaning the bar will be lower to hit.   It's also not really necessary to manipulate earnings to have a consistently well-performing stock.  This article for example shows that companies who miss earnings estimates don't really suffer much (when controlling for their actual earnings changes, of course) in the long run.  Your price might drop a bit, but if your company is otherwise sound, it will recover. Finally, companies do sometimes come out with information ahead of earnings that cause expectations to be lowered.  7-Eleven for example just lowered its earnings expectations due to various reasons.  Some companies choose to do this in order to dilute the effect on the market.  I'm not sure if this is ever required, but it seems to me that some companies are much quicker to restate earnings expectations than others.
I'm not a lawyer and someone more knowledgeable than I will probably respond to this inquiry.  I worked with nonprofits for years however.  My suggestion would be that the Board would have a resolution allowing the Director to approve any contract below a certain dollar amount. Usually their PE ratio will just be listed as 0 or blank.  Though I've always wondered why they don't just list the negative PE as from a straight math standpoint it makes sense. PE while it can be a useful barometer for a company, but certainly does not tell you everything.  A company could have negative earnings for a lot of reasons, some good and some bad.  The company could just be a bad company and could be losing money hand over fist, or the company could have had a one time occurrence such as a big acquisition or some other event that just affected this years earnings, or they could be an awesome high growth company that is heavily investing for their future and forgoing locking in profits now for much bigger profits in the future. Generally IPO company's fall into that last category as they are going public usually because they want an influx of cash that they are going to use to grow the company much more rapidly.  So they are likely already taking all incoming $$ and taking on debt to grow the company and have exceeded all of those options and that's when they turn to the stock market for the additional influx of cash, so it is very common for these companies not to have earnings.   Now you just have to decide if that company is investing that money wisely and will in the future translate to actual earnings. "The US government requires corporations to follow certain accounting standards, while exempting itself. For example, companies financial reports must reflect the future costs of things like employee pensions, healthcare and other liabilities. So if you own a company and have an obligation to pay someone $100 in ten years, that obligation must be reflected on your current financial statements. Most US governments operate under a cash accounting scheme that don't necessarily recognize the current costs of big future promises. At the State and Local levels, politicians actively and openly flaunt this -- Governors, mayors, etc routinely do things like give employees enhanced benefits (whose costs kick in the down line) or unlimited sick/vacation time accruals with payouts to employees to avoid impacting the short-term fiscal picture.  As an example, a New York City tabloid ran a big story a few years ago about certain transit authorities -- the standards for disability pensions were so low that 95% of employees were categorized as ""disabled"" and were receiving pensions that were in many cases greater than the employees salary while working." Rating agencies should be paid on accuracy, i.e. each bond issued pays x $ into a pool, and the bond companies whom are accurate over the maturity get a share of the pool.  Those whom are not, must add money to the pool. (Like an accuracy market!) "Synergy is when a relationship makes its members stronger. ""Relationships"" doesn't cut it. Results and [ROI](http://www.investopedia.com/terms/r/returnoninvestment.asp) are very different. If a subordinate brings an insignificant problem to their manager, ""be realistic"" doesn't have quite the kick that ""deal with it"" does, IMO, but I'll give it to you. I'm not sure what you're getting at with ""Expectations? Goals?"", but managing expectations is conveyed in neither.  Your terms do not suffice, and your lack of understanding leads me to believe that you're either really junior or not in business at all." As someone who works on the sell side, I can tell you you're partially right.  Yes, we do make money off of trades (so just getting people to trade gets the company money) but we do try to be right.  We like to look at overall trends with growth projections and earnings estimates, and (as long as the analyst isn't a bad one) will try to get the right answer.  Often, we try to present different angles to the research and aren't afraid to go out on a limb--so that you'll read it. We like being right though.  The reason we like to be right and make people understand that we know what is going on is simple: a company won't respect research if it's bullshit.  And that goes for trading and buy side firms, but also from the companies involved in the research.  For an investment bank, a large chunk (often over 50%) of revenue comes from M&amp;A deals, and often a company will choose to do a deal with companies they know will give a good value-that come's from their first experience with the company-equity research.  So yes, we don't like to beat up on companies, but we do want to be right.    If the analyst has that bad a rate of success, he's probably pretty bad or you're looking at an industry where nobody saw some huge shift coming.  Edit: Oh, and analysts can't buy or sell any company in their sector (I think this is industry-wide, not just my firm) Since the vast majority of fund managers/big investors run private entities, it's not possible to track their performance. It's possible to look at what they are holding (that's never real-time information) and emulate their performance. This is one of the simplest demonstrable examples of a non-intuitive result. (And has a ton of utility for corporate strategy, not just trade ... but many business managers do not understand it).  Statistics and exponential growth contain others simple-to-prove non-intuitive results. People need to study this type of stuff more ... brains are no good at understanding reality.  David Ricardo was *the* man. Problem with deciding investments in a company is that you have multiple potential options, each with their projected returns, but each also has some hard-to-estimate risks. A further problem is that these opportunities arrive one-by-one, so you usually cannot compare project A vs. project B to decide which one is better. The internal rate of return is a rule-of-thumb like way to make these decisions. The company board may set an IRR target of e.g. 15%, and each executive will compare their projects against that target. They'll execute only the projects that are projected to give a good return, but some of these projects will end up failing. Thus the real average profit will not be equal to IRR. Important thing is that this target number gives ways to compare projects, and also for the board to control the investments. If the company has a good track record of being successful at projects, the board might set an IRR target of 10% and expect to get e.g. 8% return on their investment. However, if the company has a much larger risk of projects failing, they might demand a predicted IRR of 20% to account for the risk. Ultimately if the IRR target is set too high, the company will find no projects it considers profitable to invest in. In practice if this happens, the company owners are better off taking out the cash as dividends and investing it elsewhere. "I don't mean to be discouraging, but that isn't necessarily always the case. Despite being the larger company, it is possible the other team will have a lower cost, or be more efficient, or depending on how the organizational structure works out may just simply be in a familiar reporting structure that ""trusts"" them more. I think that's why /u/RustbeltRoots suggested it is nearly impossible to tell." It's a way to help normalize the meaning of the earnings report. Some companies like Google have a small number of publicly traded shares (322 Million). Others like Microsoft have much larger numbers of shares (8.3 Billion). The meaning depends on the stock. If it's a utility company that doesn't really grow, you don't want to see lots of changes -- the earnings per share should be stable. If it's a growth company, earnings should be growing quickly, and flat growth means that the stock is probably going down, especially if slow growth wasn't expected. To be fair, the analyst is talking about the book value of the firm. Basically, the value of all the stuff it owns now. There are plenty of companies with negative book value that can justify a positive share price. Ford, for instance, had negative book value but positive future earnings. P/E can use various estimates in its calculation as one could speculate about future P/E rations and thus could determine a future valuation if one is prepared to say that the P/E should be X for a company. Course it is worth noting that if a company isn't generating positive earnings this can be a less than useful tool, e.g. Amazon in the 1990s lost money every quarter and thus would have had a N/A for a P/E. PEG would use P/E and earnings growth as a way to see if a stock is overvalued based on projected growth. If a company has a high P/E but has a high earnings growth rate then that may prove to be worth it. By using the growth rate, one can get a better idea of the context to that figure. Another way to gain context on P/E would be to look at industry averages that would often be found on Yahoo! Finance and other sites. I still remember during the dot-com boom when everyone was talking about how the traditional business metrics didn't work anymore. Turns out that a lot of people got severely burned finding out that they, in fact, did still work just fine. Is this a time of day effect by using, e.g. closing prices, in markets that close at different times?  If so, you can mitigate this by looking at returns over longer periods (weekly, monthly or quarterly).  If the cross-listed equities are showing consistently different returns at the exact same time, then you should be more concerned in figuring out how to trade the arbitrage rather than estimating a beta.