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Forward-Looking Statements

Moneyzine Editor
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Moneyzine Editor
2 mins
January 18th, 2024
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Forward-Looking Statements

Definition

The term forward-looking statement refers to predictions made in written materials that reference the future business or operating performance of a company. Forward-looking statements must be clearly identified by companies when communicating; allowing investors to easily distinguish between facts and speculation.

Explanation

Rules under the jurisdiction of the Securities and Exchange Commission require companies to comply with certain standards of communication. These rules were put into place to allow investors to clearly understand when a published report or statement made by a company was based on historical records or a forecast of future performance.

Companies will usually include a note indicating a report contains forward-looking statements near the beginning of any publicly-released information. These statements will frequently reference anticipated growth rates of net income, earnings, as well as the company's future investment opportunities.

Companies will normally include a statement as part of its annual report or Form 10-K. The statement itself will oftentimes contain language similar to the below:

"Matters discussed in this communication about future performance, including revenues, earnings, strategies, and prospects that are not based on historical information constitute "forward-looking statements" within the meaning outlined in the Private Securities Litigation Reform Act of 1995. A forward-looking statement is subject to certain risks and uncertainties, which may cause the company's actual results to differ materially from those appearing in this report."

The document will also provide the reader with insights into how to identify instances where a forward-looking statement is being made in the report. For example, it may indicate words such as "anticipate," "intend," "forecast," "estimate," "may," "expect," "plan," "could," "potential," "project," "propose," can be used to identify a forward-looking statement.

These statements not only allow investors to make prudent decisions, but also provide protection to those entities making such statements. For example, a company may make a forward-looking statement about future earnings. If the company does not deliver those earnings to investors, it's protected from legal action since it's identified the uncertainty and risk associated with such forecasts.

Related Terms

  • Form 10-K
    The term Form 10-K refers to an annual report that summarizes the business and financial performance of a company. Form 10-K is a detailed document, which is produced by companies at the close of their fiscal year. The document contains a large number of audited financial statements that publically-traded companies are required to file with the Securities and Exchange Commission each year.
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    Moneyzine Editor
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  • Form 10-Q
    The term Form 10-Q refers to a quarterly report that summarizes the business and financial performance of a company. Form 10-Q is a detailed document, which is produced three times each year and contains a number of unaudited financial statements publicly-traded companies are required to file with the Securities and Exchange Commission.
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  • Form 8-K
    The term Form 8-K refers to a report that summarizes material events that may be of importance to the Securities and Exchange Commission or investors. The Form 8-K is used to describe a number of material events as they occur. Regulations require companies to file this report with the Securities and Exchange Commission within four days of the event.
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  • Definitive Proxy Statement
    The term proxy statement refers to a document companies provide to their shareholders outlining decisions the company will discuss at a special or annual shareholder meeting. The Securities and Exchange Commission requires companies to provide a definitive proxy statement to shareholders prior to a vote on important matters.
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  • Annual Report
    The term annual report refers to a document that summarizes the operating and financial performance of a company over the course of a year. An annual report is typically distributed to shareholders along with a definitive proxy statement approximately forty days prior to the company's annual stockholder meeting.
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  • Financial Highlights
    The term financial highlights refers to a section appearing in an annual report that includes a multi-year comparison of operating and business metrics. Financial highlights are oftentimes the first section appearing in an annual report, providing investors with an at-a-glance view of the company's recent performance.
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  • The term safe harbor refers to a statutory provision or regulation that eliminates liability as long as the entity did not knowingly make false statements. Safe harbor provisions are typically associated with forward-looking statements, and will explain to users the risks associated with the use of such information.
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  • Management's Discussion and Analysis (MD&A)
    The term Management's Discussion and Analysis refers to a section of the annual report that provides investors with insights into how the business performed in the past, its current financial condition as well as projections of future performance. Management's Discussion and Analysis (MD&A) is normally included with a company's annual report or Form 10-K, allowing the investor-analyst to understand how the leaders of the business believe the company has performed over the last year and what the future may bring.
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  • Critical Accounting Estimates (CAE)
    The term critical accounting estimates refers to those assumptions and approximations that may have a material impact on the financial statements of a company due to the level of subjectivity involved in developing the estimate. The assumptions used when developing critical accounting estimates are outlined in a company's Form 10-K filing.
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