Predicting Current Cost Operating Profit Using Component Models Incorporating Analysts' Forecasts.

Edward P. Swanson; Winston T. Shearon; Lynn R. Thomas

doi:10.2308/tar-4491732

Predicting Current Cost Operating Profit Using Component Models Incorporating Analysts' Forecasts.

Edward P. Swanson¹; Winston T. Shearon¹; Lynn R. Thomas²

¹ Associate Professors of Accounting, Texas A&M University. 1 · ² Assistant Professor of Accounting, Texas A&M University. 2

The Accounting Review 1985

ABSTRACT: The accuracy of forecasts of one-year-ahead current cost earnings using four component models is examined. ASR 190 data for 1976 to 1978 and FAS 33 data for 1979 to 1981 are used in calculating current cost earnings for a sample of 129 firms. The component forecasting models also incorporate forecasts of certain components of historical cost net income developed by Value Line financial analysts. The forecast accuracy of the component models is compared to four benchmark models. A component model that incorporates analysts' forecasts of sales and changes in (historical cost) margins provides the most accurate forecasts for the aggregate sample and for two subsamples. It also provides similar or more accurate forecasts than the other models in eight of the nine industries examined. Thus, researchers may consider using this model when examining the incremental information content of current cost earnings vis-a-vis that of historical cost earnings.

DOI: 10.2308/tar-4491732
Volume: 60 (4)
Pages: 681-691
Language: en
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