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Author: Patricia M. Fairfield
Publisher:
ISBN:
Category :
Languages : en
Pages : 32
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Book Description
An important goal of accounting research is to provide evidence that improves the analysis of financial statements for predicting future profitability. Research (Sloan 1996; Xie 2001) has found that (1) the persistence of earnings performance depends on the proportions of the cash and accrual components and that (2) a market inefficiency results from the failure of investors to fully appreciate the implications of cash flows and accruals for future earnings performance. In this study we investigate whether these results with respect to accruals can be generalized to another form of growth in net operating assets. We find that growth in long-term net operating assets, like accruals, has a negative association with one-year-ahead return on assets. We also find that the negative associations of both forms of growth (accruals and growth in long-term net operating assets) to one-year-ahead return on assets are attributable to the effect of growth on the denominator of return on assets. Furthermore, we find that the apparent market mispricing of accruals applies to growth in long-term net operating assets and that the severity of the mispricing does not significantly differ between the components of growth. Thus, the results suggest that the accrual anomaly documented in Sloan (1996) is a subset of a larger anomaly with respect to a general market mispricing of growth in net operating assets. Statement Analysis, Market Mispricing.
Author: Patricia M. Fairfield
Publisher:
ISBN:
Category :
Languages : en
Pages : 32
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Book Description
An important goal of accounting research is to provide evidence that improves the analysis of financial statements for predicting future profitability. Research (Sloan 1996; Xie 2001) has found that (1) the persistence of earnings performance depends on the proportions of the cash and accrual components and that (2) a market inefficiency results from the failure of investors to fully appreciate the implications of cash flows and accruals for future earnings performance. In this study we investigate whether these results with respect to accruals can be generalized to another form of growth in net operating assets. We find that growth in long-term net operating assets, like accruals, has a negative association with one-year-ahead return on assets. We also find that the negative associations of both forms of growth (accruals and growth in long-term net operating assets) to one-year-ahead return on assets are attributable to the effect of growth on the denominator of return on assets. Furthermore, we find that the apparent market mispricing of accruals applies to growth in long-term net operating assets and that the severity of the mispricing does not significantly differ between the components of growth. Thus, the results suggest that the accrual anomaly documented in Sloan (1996) is a subset of a larger anomaly with respect to a general market mispricing of growth in net operating assets. Statement Analysis, Market Mispricing.
Author: Patricia M. Fairfield
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Prior research reveals that the accrual component of profitability is less persistent than the cash flow component, and that investors fail to fully appreciate their differing implications for future profitability (Sloan 1996). However, accruals are a component of growth in net operating assets as well as a component of profitability. Just as we can disaggregate profitability into accruals and cash flows from operations, we can disaggregate growth in net operating assets into accruals and growth in long-term net operating assets. We find, after controlling for current profitability, that both components of growth in net operating assets - accruals and growth in long-term net operating assets - have equivalent negative associations with one-year-ahead return on assets. This result is consistent with conservative accounting and diminishing marginal returns on investments. We also find, after controlling for current profitability, that the market appears to equivalently overvalue accruals and growth in long-term net operating assets relative to their association with one-year-ahead ROA. Our evidence suggests that the accrual anomaly documented in Sloan (1996) is a special case of what could be viewed as a more general growth anomaly.
Author: James A. Ohlson
Publisher: Now Publishers Inc
ISBN: 1933019425
Category : Business & Economics
Languages : en
Pages : 90
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Book Description
Earnings, Earnings Growth and Value presents a model of earnings and dividends leading up to the core principle that growth in earnings explains the price to forward-earnings ratio. This model is referred to as the OJ (Ohlson and Jeuttner-Nauroth) model. The OJ model takes into account two growth measures of earnings -- the near term and the long term -- to explain the price to forward-earnings ratio. Further, the model allows for a broad set of dividend policies. Earnings, Earnings Growth and Value starts from the basics and derives the valuation formula which shows how value depends on earnings and their growth. Some of the topics developed here are include dividend policy irrelevancy (DPI), how one extends the model to incorporate an underlying information dynamic, accounting rules and their influence on the model, and ways in which the model can be extended to reflect operating vs. financial activities. Earnings, Earnings Growth and Value should be required reading for researchers in accounting and finance with an interest in accounting theory, equity valuation and financial accounting.
Author: Fred Reichheld
Publisher: Harvard Business Press
ISBN: 1647821797
Category : Business & Economics
Languages : en
Pages : 159
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Book Description
Great leaders embrace a higher purpose to win. The Net Promoter System shines as their guiding star. Few management ideas have spread so far and wide as the Net Promoter System (NPS). Since its conception almost two decades ago by customer loyalty guru Fred Reichheld, thousands of companies around the world have adopted it—from industrial titans such as Mercedes-Benz and Cummins to tech giants like Apple and Amazon to digital innovators such as Warby Parker and Peloton. Now, Reichheld has raised the bar yet again. In Winning on Purpose, he demonstrates that the primary purpose of a business should be to enrich the lives of its customers. Why? Because when customers feel this love, they come back for more and bring their friends—generating good profits. This is NPS 3.0 and it puts a new take on the age-old Golden Rule—treat customers the way you would want a loved one treated—at the heart of enduring business success. As the compelling examples in this book illustrate, companies with superior NPS consistently deliver higher returns to shareholders across a wide array of industries. But winning on purpose isn't easy. Reichheld also explains why many NPS practitioners achieve just a small fraction of the system's full potential, and he presents the newest thinking and best practices for doing NPS right. He unveils the Earned Growth Rate (EGR): the first reliable, complementary accounting measure that can truly leverage the power of NPS. With keen insight and moving personal stories, Reichheld advances the thinking and practice of NPS. Winning on Purpose is your indispensable guide for inspiring customer love within your own teams and using Net Promoter to achieve both personal and business success.
Author: Paul Hribar
Publisher:
ISBN:
Category :
Languages : en
Pages : 42
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Book Description
This paper examines the circumstances under which a growth explanation or a persistence explanation is a more likely explanation for accrual mispricing and whether accruals or cash from operations is a better measure of the mispricing. We hypothesize that mispricing of growth and a fixation on earnings are both descriptive of the accrual mispricing, but that they affect prices differently depending on where the firm is in its life cycle. We also hypothesize that the mispricing will have a stronger association with accruals or cash flows depending on which explanation drives the mispricing. Our results show that the orthogonal information in accruals is more related to growth characteristics, while the orthogonal information in cash flows is related to earnings persistence. Furthermore, in the growth stage, information in accruals is mispriced to a greater extent than the information in cash flows. Collectively, our results suggest that the investment-based explanation for accrual mispricing dominates in the growth stage and is best measured using accruals (and not operating cash flows). In contrast, the persistence explanation for accrual mispricing is more descriptively valid at maturity and decline, and the information contained in operating cash flows subsumes the information contained in accruals regarding earnings persistence.
Author: Amy Yunzhi Zang
Publisher: ProQuest
ISBN: 9780549163251
Category :
Languages : en
Pages : 120
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Book Description
Author: Robin Leah Tarpley
Publisher:
ISBN:
Category :
Languages : en
Pages : 342
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Book Description
Author: Hewitt Heiserman
Publisher: McGraw Hill Professional
ISBN: 0071423230
Category : Business & Economics
Languages : en
Pages : 239
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Book Description
An innovative technique for seeing through a company's published numbers to discover its true investment potential.
Author: Scott A. Richardson
Publisher:
ISBN:
Category :
Languages : en
Pages : 53
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Book Description
Following Sloan (1996), numerous studies show that the accrual component of earnings is less persistent than the cash flow component of earnings. Disagreement exists, however, as to the explanation for this result. Xie (2001) attributes the result to managerial discretion. Fairfield et al. (2003a) argue that it is a special case of a more general growth anomaly that is attributable to the widespread use of conservative accounting methods and/or diminishing marginal returns to new investment. Finally, Dechow and Dichev (2002) and Richardson et al. (2004) argue that it is attributable to transitory accrual estimation error. In this paper, we provide theory and evidence to discriminate between these alternative explanations. Our analysis suggests that transitory accrual estimation error provides the most consistent explanation for the lower persistence of the accrual component of earnings. Further, our results suggest the accrual estimation error is at least partially attributable to managerial discretion.
Author: Kenton K. Yee
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
How does the presence of a growth option affect expected earnings growth? This paper analyzes a firm with one growth option and an accrual accounting policy that, in the absence of a growth option, would equate accounting earnings to Hicksian earnings. Under this accounting policy, the presence of a growth option induces abnormal earnings growth and increases the long run growth rate of expected earnings. Further analysis links the long run growth rate of expected earnings to the option-exercise strategy and the expected lifespan of the option. Implications concerning the relationship between Ramp;D investment, analysts' long run forecasts, and equity valuation are discussed.
