The track-record and creditability of current management

Importance of management guidance

Management guidance (or management outlook etc.) probably has a lot weight when considering estimates - Normally it can be said that the management has the best view about how their company is really doing and what the future holds for them. This, however, does not mean that you should believe everything management says without checking the facts.

Track-record and creditability

What you should do is find out and tell how accurate the management guidance has been in the past. Best way to do this is to use the track-record of management: basically you just tell what the management has been expecting and what has been the actual result. Compare estimate vs. actual, simple but effective. With this information you, and every one else, can measure the creditability of current management. If you for some reason doubt the credibility of management, always justify your arguments with facts. Management probably doesn't appreciate if their trustworthiness is questioned without solid arguments that are backed up with facts. For example you can support your thoughts with developments of net sales, profitability, order book or market situation.

Good management vs. bad management

Even the best of us make mistakes and management is no exception. What separates good management from bad management is the amount of mistakes and the quality of communication. Bad management makes perhaps more mistakes, more serious/stupid mistakes and/or it does not reassess and communicate the situation so quickly to investors than the good one. Good management tells relevant information openly, honestly and without delays. Bad management normally communicates poorly with the market and maybe even, in some extreme cases, delays, hides or twists relevant information (this naturally is against law and very extraordinary).

Management guidance and expectations - Different styles

It is good to recognize the style of your company's management. In many cases management gives cautious and modest estimates, so they can be outperformed and disappointments are avoided. In the other end there are some companies that are constantly over-optimistic. These companies are due to disappoint the market with less than expected results. Some companies don't really offer much management guidance - they just settle for stating some obvious facts. This is quite common among smaller companies as they typically have fewer resources for this kind of things. Fortunately there are also companies that can normally offer both realistic and useful management guidance.

Summary

All in all, good management can normally be trusted and it's accurate enough on its estimates. On the contradictory, bad management can rarely be trusted and its expectations can be more based on a feeling than actual facts. Still, if you don't trust management and you're estimates differ from theirs; always justify your thoughts and estimates with good, fact-based arguments. There are also different kinds of styles giving management guidance - try to recognize the style of your company.