As a result, it's a good idea to rely on your projection of a company's future sales growth, and then analyze the various components that affect the bottom line to come up with an earnings estimate. This is known as Revenues-Based Earnings Projection, and it is the same method that many analysts use when studying a company. You can use the same technique to calculate your own earnings estimate. Pre-Tax Profit Margin. You can use the average from the past five years, or a more conservative choice, depending on the past trends.
Taxes seem to always be increasing.
Look at the tax rate for the past five years, and estimate if taxes will be the same, higher, or lower in the future. If the company has a class of preferred stock, the total amount of dividends that will be paid to these shareholders must be projected. Number of Shares Outstanding. Many of these variables are fairly constant over time for well-managed companies. Some stock research reports, such as the Value Line Investment Survey, includes all of these figures projected five years into the future.