Analyst forecasts: sales and profit margins

C. S. Agnes Cheng, K. C. Kenneth Chu () and James Ohlson ()
Additional contact information
C. S. Agnes Cheng: Hong Kong Polytechnic University
K. C. Kenneth Chu: Hong Kong Polytechnic University
James Ohlson: Hong Kong Polytechnic University

Review of Accounting Studies, 2020, vol. 25, issue 1, No 2, 54-83

Abstract: Abstract Sales and profit margins are two popular earnings components discussed in the media. We study properties of one-year-ahead analyst forecasts of these two components. As sales are in dollar amounts and profit margin is a ratio, we propose robust statistical methods to assess and contrast their forecast properties. We find that four performance properties associated with earnings forecasts—optimism, relative accuracy with respect to benchmark model forecasts, forecast suboptimality, and serial correlation of forecast errors—apply to both sales and profit margins. Sales forecasts, in general, perform better than profit margin forecasts. Further evidence also shows that sales forecasts perform better than profit margin forecasts in terms of how their forecast errors explain earnings forecast errors and how realized surprises affect adjustments of the respective forecasts. We also find that a better information environment, surrogated by size, improves sales forecasts more than profit margin forecasts. All of these findings suggest that forecasting profit margins is inherently more difficult than forecasting sales.

Keywords: Note:; This; data; is; mandatory. (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://link.springer.com/10.1007/s11142-019-09521-z Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:reaccs:v:25:y:2020:i:1:d:10.1007_s11142-019-09521-z

Ordering information: This journal article can be ordered from
http://www.springer.com/accounting/journal/11142

DOI: 10.1007/s11142-019-09521-z

Access Statistics for this article

Review of Accounting Studies is currently edited by Paul Fischer

More articles in Review of Accounting Studies from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().