This post is based on a question from one of the readers, “I sometimes see research reports of various broker-houses. They show future EPS. They say company has orders lined-up in order book. I am not sure how to get order book details and Future EPS of a company”. I thought this was an interesting question in a sense that how it is interpreted by us as individual investors. Like everything, this also can be interpreted in multiple different ways.

In my view, there is no effective way to measure the impact of future order book on future EPS. Theoretically, it is possible to translate this into future EPS. But I believe it can only be done by company executives. It is company insiders who know the operating cost, raw material cost, possibility of order completion, taxation, and when the revenue is likely to be realized (i.e. received by the company). I cannot understand how brokerage houses or independent analyst can make that estimate.  I would like to know if anybody can share the methodology? To me, it only has a marketing value, nothing beyond that. Let me use an example. Continue reading rest of this article…