Question
Chicago-based GrubHub, an online and mobile food-ordering service, reported third-quarter 2015 revenue jumped 38 percent and profits for the quarter grew 6 percent over the
Chicago-based GrubHub, an online and mobile food-ordering service, reported third-quarter 2015 revenue jumped 38 percent and profits for the quarter grew 6 percent over the same period in 2014. Earnings per share remained steady at an adjusted 13 cents per share. However, the stock market analysts following the company, polled by Thomson First Call, were expecting earnings of 14 cents per share from revenue of $86 million. The company's stock price fell from 30 percent immediately after the earnings report was released. Earnings predictions are prepared regularly by analysts who closely follow companies and they are compiled by groups like Thomson First Call and Nelsons. Stock prices react to those predictions, and when they are not met, stock prices drop. To achieve or beat these expectations, companies often tell analysts that earnings will be lower than they really believe, or sometimes they use accounting discretion to boost reported earnings. How do analysts make earnings predictions, and what role do financial statements play? Also, please weigh in on what occurred with GrubHub and what contributed to the companys stock price falling immediately after earnings were released? How would GrubHub be able to use financial ratio analysis to improve company results?
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