Ex-Ante

Ex-ante is a description of something that will happen in the future, for example, it can be either the potential returns that an investor would get from some security or the returns of a company. The phrase came from Latin and literally represents the colocation “before the event.”

There are many presented analyses about the market, the largest part of carrying out analysis may be called ex-ante since they put their attention on the long-term result, earnings and revenue. Even though such studies concentrate on fundamentals of a company, they may also refer to asset prices. For instance, buy-side analysts or buysiders (their task is to define which investments will bring more profits for the portfolio for which they work) use fundamentals to recognize the price of a stock, which they analyze and then to compare the expected with the actual one.

Main principles of Ex-ante concept

The concept ex-ante refers to the predictions about the thing that happens in the future or about things that aren’t known by the market participants at this particular moment. Ex-ante analysis, in its turn, mentions several things. For example, evaluation of earnings needs an ex-ante account. Regarding this kind of evaluation ex-ante analysis considers the performance of all organization’s units. Sometimes, the analysis even takes performance of single products into account. The analysis may also imply building a model of cash uses, it includes capital investments, dividends and stock buybacks. Nobody is able to say for sure the result before it comes out, however, these predictions are used in order to compare it with the actual results in the future.

Among all kinds of ex-ante analysis there is one, which may become a greatest tool for every investor. This kind is called earnings per share analysis. The kind is general and aims to assess the general assets of a company or a firm. The other reason why this kind of analysis is helpful is that it may show which analysts in one particular category of stocks have the most precise predictions in case their colleagues have different ones.

The usual thing for analysts is to carry out a study and make a reduction in case a merger is likely to happen soon, but hasn’t happened yet. This kind of research includes cost savings accession and potential revenue that is likely to come as the advantage of the merger.

In finance all forecasting and analysis can’t be described as ex-ante. Forecastings are all described as ex-ante since they analyze the event before it occurs, thus, all forecastings are ex-ante, but not all analyses are ex-ante. Some analyses imply the studying of the events that have already happened. For instance, after a merger there are many uncertainties connected with company fundamentals. In this case the analysis is aimed to predict the first earnings reports, etc.

It’s true that all variables can’t be considered in one analysis since the market is extremely unpredictable. Sometimes, price targets don’t correspond to the real prices because of the stock market’s external factors. Thus, the ideal and precise ex-ante analysis, which would be true for one hundred percent, can't exist in this world.

Reverse description

Ex-ante refers to the events that will happen in the future and analysts try to study them and predict results. However, the analysis that is made after the event took place is needed as well. Thus, there is the reverse description, which refers to the comparison of actual results with the expected. Such an analysis is called ex-post analysis. It’s quite useful for the future ex-ante analysis and may give a totally new perception of the event.

Example of Ex-Ante evaluation

Many companies conduct ex-ante evaluations, some of them even have special checklists in order to make the procedure more precise and worthy. For example, Japan International Cooperation Agency (JICA) has a checklist, which comprises five topics of assessment, such as planning, implementation process, relevance, effectiveness and efficiency. Each of them has a list with questions, clarifying and specifying every aspect. Such evaluation helps to improve the plan and determine the relevance of a project.