Predictions of annual earnings using quarterly earnings,annual earnings and dividend payout ratios

This study empirically examines two issues related to forecasting annual accounting earnings. The first issue studied is the improvement in forecasts of annual earnings that can be obtained by including information about dividend payout along with the past earnings series in forecasting models. The second issue deals with the comparative ability of quarterly earnings time series models and annual earnings time series models to predict annual earnings. The results of this study indicate that considerable improvement in predictive ability can be obtained by expanding the information set to include the dividend payout ratio series. The empirical analysis also indicates that time series models developed using annual earnings generate more accurate predictions of annual earnings than do models developed using quarterly earnings.