Question: The following are earnings per share for
The following are earnings per share for two companies by quarter from the first quarter three years ago through the second quarter of this year. Forecast earnings per share for the rest of this year and next year. Use exponential smoothing to forecast the third period of this year, and the time series decomposition method to forecast the last two quarters of this year and all four quarters of next year. (It is much easier to solve this problem on a computer spreadsheet so you can see what is happening.)
a. For the exponential smoothing method, choose the first quarter of three years ago as the beginning forecast. Make two forecasts: one with α = 0.10 and one with α = 0.30.
b. Using the MAD method of testing the forecasting model’s performance, plus actual data from three years ago through the second quarter of this year, how well did the model perform?
c. Using the decomposition of a time series method of forecasting, forecast earnings per share for the last two quarters of this year and all four quarters of next year. Is there a seasonal factor in the earnings?
d. Using your forecasts, comment on each company.
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Earnings per Share Quarter Company A Company B 3 years ago $1.67 $0.17 II 2.35 0.24 II 1.11 0.26 IV 1.15 0.34 2 years ago 1.56 0.25 II 2.04 0.37 II 1.14 0.36 IV 0.38 0.44 Last year 0.29 0.33 II -0.18 (loss) 0.40 II -0.97 (loss) 0.41 IV 0.20 0.47 This year -1.54 (loss) 0.30 II 0.38 0.47
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