Which sustainable growth rate is best at forecasting actual growth?

IF 1.1 Q4 BUSINESS American Journal of Business Pub Date : 2023-06-07 DOI:10.1108/ajb-12-2022-0196
G. Moore, M. Simpson
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Abstract

PurposeUsing various proxies for the firms' return on equity (ROE) and retention ratios (b) the authors calculate 36 sustainable growth rates, on a rolling basis, for a comprehensive set of firms over a 52-year period. The authors then assess the ability of these different sustainable growth rates to predict the actual, out-of-sample, five-year growth rates of the firms' earnings.Design/methodology/approachThe authors compare the forecast to determine which method of estimating ROE and b produce the lowest mean-squared-errors and then determine the estimation method that works best for firms with different characteristics and for firms in different industries.FindingsOverall, using the median ROE of all firms in the market and the 5-year average of the specific firm's retention ratio produces the lowest, statistically significant, forecast errors. Variations are documented based on firm characteristics, including dividend payout, level of ROE and industry.Practical implicationsThe findings can guide practitioners in using the best earnings forecasting method.Originality/valueFinancial textbooks seem universally to suggest that one method of estimating the growth rate of a firm's earnings is to calculate the “sustainable growth rate” by multiplying the firm's ROE by the firm's b. At the same time, multiple methods of proxying for both ROE and b have been suggested; therefore, it is an interesting and useful empirical question, which, heretofore, has not been addressed in the literature, as to which estimation of the sustainable growth rate best approximates the actual future growth of the firm's earnings. The findings can guide practitioners in using the best earnings forecasting method.
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哪种可持续增长率最能预测实际增长率?
目的:利用公司净资产收益率(ROE)和留存率(b)的各种代理,作者在滚动基础上计算了一组公司在52年期间的36个可持续增长率。然后,作者评估了这些不同的可持续增长率的能力,以预测公司收益的实际、样本外的5年增长率。设计/方法/方法作者比较预测,以确定哪种估计ROE和b的方法产生最小的均方误差,然后确定对具有不同特征的公司和不同行业的公司最有效的估计方法。总体而言,使用市场上所有公司的净资产收益率中位数和特定公司留存率的5年平均值会产生最低的、统计上显著的预测误差。根据公司特征,包括股息支付,ROE水平和行业,记录了变化。实践意义研究结果可以指导从业者使用最佳盈余预测方法。原创/价值金融教科书似乎普遍认为,估计公司收益增长率的一种方法是通过将公司的ROE乘以公司的b来计算“可持续增长率”。同时,已经提出了多种代理ROE和b的方法;因此,这是一个有趣而有用的实证问题,到目前为止,在文献中还没有解决,即哪种可持续增长率的估计最接近公司收益的实际未来增长。研究结果可以指导从业者使用最佳的盈余预测方法。
本文章由计算机程序翻译,如有差异,请以英文原文为准。
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