In this installment of "Ask a Fool," Fool contributor Steve Heller takes a question from Fool reader Joshua Geldert, who writes:
Are there specific guidelines for companies when they issue guidance for the quarter or year? For example, the media constantly states that Apple (NASDAQ:AAPL) low-balls their guidance. How do they come up with this number in the first place? Are there specific guidelines for analysts as well, which is the reason why analysts are wrong the majority of the time?
In the following video, Steve goes on to explain how Apple issues its own guidance by looking internally and making projections based on previous results while also factoring in new products and variables. On the analyst side, a similar exercise is preformed, but the difference is that analysts don't have access to all the intricacies of Apple's books, leaving more of the estimation up to assumptions that could go awry. In the end, Steve gives Apple investors some advice on how to think its performance in a much simpler way than measuring its performance against its earnings guidance.