The Present Value of Corporate Profits: A Forecasters' Survey Perspective

January 16, 2019

Preview Citation

Format: Chicago

Michal Andrle. The Present Value of Corporate Profits: A Forecasters' Survey Perspective, (USA: International Monetary Fund, 2019) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper presents and discusses the estimates of the present value of corporate profits in the United States from 1984 to 2018. To value the expected income stream, it uses the long-range forecasts of professional forecasters for pre-tax corporate earnings and long-term Treasury note yields, sourced from the Blue Chip Economic Indicators survey. The appraised value of corporate earnings can point in real time at periods where market prices are deviating from valuations implied by expected earnings and interest rates. Market participants' forecasts seem to interpret most of the earnings fluctuations as permanent, underestimating the cyclical fluctuations The over-reaction to transitory shocks and changes in long-term outlook leads to swings in the valuation, in line with swings in the observed market prices.

Subject: Asset prices, Financial institutions, Financial services, Labor, Long term interest rates, National accounts, Prices, Return on investment, Stocks, Wages

Keywords: Asset prices, Corporate earnings, Earnings, Earnings outlook, Equity risk premium, Growth expectation, Interest rate, Long term interest rates, Period-by-period earnings, Present value, Present-value computation, Profit growth, Rate of return, Return on investment, Risk premium, Stocks, Value investor, Wages, WP

Publication Details

Pages:

24
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/012
Stock No:

WPIEA2019012
ISBN:

9781484390047
ISSN:

1018-5941

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