An analyst would like to determine whether there is a pattern to earnings per sh

Question

An analyst would like to determine whether there is a pattern to earnings per share for the Price Company, which operated a wholesale/retail cash-and-carry business in several states under the name Price Club. The data are shown in Table P-20. Describe any patterns that exist in these data.

a. Find the forecast value of the quarterly earnings per share for Price Club for each quarter by using the naive approach (i.e., the forecast for first-quarter 1987 is the value for fourth quarter 1986, .32).

b. Evaluate the naive forecast using MAD (Mean Absolute Deviation).

c. Evaluate the naive forecast using MSE (Mean-Squared Error) and RMSE (Root Mean-Squared Error).

d. Evaluate the naive forecast using MAPE (Mean Absolute Percentage Error).

e. Evaluate the naive forecast using MPE (Mean Percentage Error).

f. Write a memo summarizing your findings.

FIGURE 3-21 Autocorrelation Function for Problem 19 Quarterly Earnings per Share for Price Club: 1986-1993 Quarter TABLE P-20 Year 1986 1987 1988 1989 1990 1991 1992 1993 1st .40 .47 .63 .76 .86 .94 .95 .93 2nd .29 34 .43 .51 51 .56 .42 .38 3rd 24 .30 38 .42 .47 .50 .57 37 4th 32 39 49 .61 .65 .60 Source: The Value Line Investment Survey (New York: Value Line, 1994), p. 1646.

Explanation / Answer

E)

WITH low values of measurements of errors I can say that naive method of forecasting is reliable.

excel sheet - replace " =" by "="

A) B) C) D) year Q t earning naïve abs(error) = abs(Ft-At) ERROR^2 ABS((ft-At)/ft) *100% 1986 1 1 0.4 1986 2 2 0.29 0.4 0.11 0.0121 0.379310345 1986 3 3 0.24 0.29 0.05 0.0025 0.208333333 1986 4 4 0.32 0.24 0.08 0.0064 0.25 1987 1 5 0.47 0.32 0.15 0.0225 0.319148936 1987 2 6 0.34 0.47 0.13 0.0169 0.382352941 1987 3 7 0.3 0.34 0.04 0.0016 0.133333333 1987 4 8 0.39 0.3 0.09 0.0081 0.230769231 1988 1 9 0.63 0.39 0.24 0.0576 0.380952381 1988 2 10 0.43 0.63 0.2 0.04 0.465116279 1988 3 11 0.38 0.43 0.05 0.0025 0.131578947 1988 4 12 0.49 0.38 0.11 0.0121 0.224489796 1989 1 13 0.76 0.49 0.27 0.0729 0.355263158 1989 2 14 0.51 0.76 0.25 0.0625 0.490196078 1989 3 15 0.42 0.51 0.09 0.0081 0.214285714 1989 4 16 0.61 0.42 0.19 0.0361 0.31147541 1990 1 17 0.86 0.61 0.25 0.0625 0.290697674 1990 2 18 0.51 0.86 0.35 0.1225 0.68627451 1990 3 19 0.47 0.51 0.04 0.0016 0.085106383 1990 4 20 0.63 0.47 0.16 0.0256 0.253968254 1991 1 21 0.94 0.63 0.31 0.0961 0.329787234 1991 2 22 0.56 0.94 0.38 0.1444 0.678571429 1991 3 23 0.5 0.56 0.06 0.0036 0.12 1991 4 24 0.65 0.5 0.15 0.0225 0.230769231 1992 1 25 0.95 0.65 0.3 0.09 0.315789474 1992 2 26 0.42 0.95 0.53 0.2809 1.261904762 1992 3 27 0.57 0.42 0.15 0.0225 0.263157895 1992 4 28 0.6 0.57 0.03 0.0009 0.05 1993 1 29 0.93 0.6 0.33 0.1089 0.35483871 1993 2 30 0.38 0.93 0.55 0.3025 1.447368421 1993 3 31 0.37 0.38 0.01 0.0001 0.027027027 1993 4 32 0.57 0.37 0.2 0.04 0.350877193 0.57 MAD 0.188709677 mse 0.054403 RMSE=sQrt(MSE) 0.233245 MAPE 0.362024003

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