The same is true for short-term financing as vendors will be increasingly willing to extend beneficial terms and contract structures. Favorable stock price performance also creates the opportunity to expand through acquisitions, whereas unfavorable performance increases the odds of becoming a takeover target and the eventual loss of control of the firm. Finally, higher stock prices usually translate into higher compensation for executives and employees, which helps retain and attract the talent needed to remain competitive. In addition to operating a competitive firm, managers have at least two other ways to hit the EPS target. The first method is often referred to as guidance.
Guidance involves interaction between a company spokesman and the analysts who follow the firm.
The spokesman will give a set of vague projections to assist analysts in creating next quarter's projections without divulging what is happening inside the firm. For example, a spokesman may suggest that in the next quarter the firm's revenue will be higher or lower, that expenses may be increasing or decreasing, or that taxes may be changing. Guidance has become a primary line of communication between firms and their analysts. Because the firm's information is disseminated through the market without giving an individual or single entity an advantage, investors are viewed as playing on a level field and the number of lawsuits and SEC interference is minimized. Guidance also fosters uniformity for the analysts' estimates which helps keep the consensus where the firm wants it.