ANALYTICS REPORT

TO: MR. BOSS

FROM: SCOTT SLEPIAN

SUBJECT: CHAPTER 4 – EARNINGS PER SHARE REGRESSION

DATE: OCTOBER 15, 2019

Introduction
Earnings per share is important in determining the value of a company. Due to this,
predicting earnings per share would be pivotal for making key investment decisions, and
ultimately be an important asset in deciding where to invest. Due to this, I have analyzed
key variables that assist in predicting earnings per share. As a result, I found that the three
most influential variables in predicting earnings per share are operating margin, and pre-
tax margin, and earnings before tax. These findings led me to running a regression
analysis, allowing us to further understand and predict earnings per share.

Data Analysis
Regression Output

Regression Equation
^Earnings per share=¿¿ 4.2 + 2.1E-10(EBT) – 0.07(OM) - .007(PTM)

Strength of Model
Our r-squared shows that based on this model we are 18.14% of the way toward being
able to perfectly predict earnings per share. In addition, our standard error shows on
average, our predictions of earnings per share are off by $4.27 per share.

Joint Significance
HO: None of the explanatory variables are significant
HA: At least one explanatory variable is significant

Based on the exceptionally small significance F value of 4.68E-63, we can conclude that
this model is indeed significant based on at least one variable.

Individual Significance

Earnings Before Tax

HO: Earnings Before Tax is not a significant predictor of earnings per share
HA: Earnings Before Tax is a significant predictor of earnings per share

Due to our p-value of 1.8374E-28, we can reject the null hypothesis and conclude that
Earnings Before Tax is a significant predictor of earnings per share.

The coefficient for Earnings Before Tax is 2.1 E-10, meaning that when all else is
constant, on average, as earnings before tax increases by $1 billion, earnings per share
increase by .21 dollars/share.

Operating Margin
HO: Operating Margin is not a significant predictor of earnings per share
HA: Operating Margin is a significant predictor of earnings per share

We reach a p-value of 1.0275E-8, meaning that we can reject the null hypothesis and
therefore conclude that operating margin is a significant predictor of earnings per share.

The coefficient for Operating Margin is -.07, meaning that as Operating Margin increases
by 1 percentage point, earnings per share decrease by $.07 per share on average.

Pre-Tax Margin
HO: Pre-Tax Margin is not a significant predictor of earnings per share
HA: Pre-Tax Margin is a significant predictor of earnings per share

Due to our p-value of .538, we cannot reject the null hypothesis and, as a result, cannot
conclude whether or not pre-tax margin is a significant predictor of earnings per share.

Conclusion
Based on these findings, we can use this model and equation to make further predictions
about earnings per share. Due to the regression we ran, we found that Earnings Before
Tax, Operating Margin, and Pre-Tax Margin when used together can be used to make
accurate predictions about Earnings Per Share. For any further questions remaining about
the model or analysis, please refer them to slslepian@email.arizona.edu.