Ratio Analysis and Equity Valuation

Nissim, Doron; Penman, Stephen H.

doi:10.2139/ssrn.161222

Cited by 216 publications

(355 citation statements)

References 28 publications

Supporting

Mentioning

327

Contrasting

Unclassified

Order By: Relevance

“…As the variables are incrementally value-relevant as a group, investors therefore value investments in listed associates by using the underlying accounting information to perform a separate valuation, rather than using the market values (fair values) of the associates directly. This is of interest to those performing or researching equity valuations, as many valuation texts argue that the unadjusted fair value of the listed associate should be incorporated into the valuation of the reporting entity (Koller, Goedhart, & Wessels, 2010;Nissim & Penman, 2001). Importantly the findings of this study also imply that accounting information of listed associates remains value-relevant, even when alternative market-based valuations are available.…”

Section: Contribution and Implications Of The Papermentioning

confidence: 69%

See 1 more Smart Citation

The value-relevance of disclosed summarised financial information of listed associates

Badenhorst

Brümmer

Wet

2015

Journal of International Accounting, Auditing and Taxation

View full text Add to dashboard Cite

Prior research considers limited elements of the summarised financial information disclosed for equity accounted associates under IAS 28. Moreover, prior research does not consider the collective or incremental value-relevance of these disclosures. This study investigates the incremental value-relevance of all the required elements of disclosed summarised financial information for listed associates and controls for disclosed fair values. Findings suggest that individual elements of disclosed summarised financial information are sometimes incrementally valuerelevant, but that the elements have the greatest incremental value-relevance as a group.These findings imply that investors value a firm's investments in listed associates at a self-developed intrinsic value, rather than using the market value (fair value) of that associate directly. By extension, underlying accounting information of listed associates remains value-relevant, even when alternative market-based valuations are available.

show abstract

Section: Contribution and Implications Of The Papermentioning

confidence: 69%

“…fair) values directly. This is of interest in a valuation research context, especially as many valuation texts advocate incorporating the unadjusted fair value of an associate in the valuation of the investor (Koller, Goedhart, & Wessels, 2010;Nissim & Penman, 2001). …”

Section: Introductionmentioning

confidence: 99%

The value-relevance of disclosed summarised financial information of listed associates

Badenhorst

Brümmer

Wet

2015

Journal of International Accounting, Auditing and Taxation

View full text Add to dashboard Cite

show abstract

“…This decomposition is consistent with the popular DuPont analysis, a method of performance measurement started by the DuPont Corporation in the 1920s. A description of the DuPont analysis and its uses can be found at [13,[89][90][91], among others.…”

Section: Estimation Results and Discussionmentioning

confidence: 99%

Sustainability Matter and Financial Performance of Companies

2017

View full text Add to dashboard Cite

Abstract:The relationship between social and environmental performance and financial performance in companies has been a subject widely debated in the literature but the results obtained to date are not conclusive. This research employs the fuzzy-set qualitative comparative analysis (fsQCA) and offers new evidence on the relationship between both types of performance in a sample of companies listed in the Spanish capital market. Financial performance is measured by the return on equity (ROE) ratio, variable that is widely used in Finance and Accounting related research. The corporate performance of the company is measured by its inclusion or not in the sustainability index used as reference for the Spanish capital market, the FTSEGood4 IBEX. The model also incorporates other business variables that might affect the relationships between both types of performance, such as return on assets (ROA) ratio, company size, debt ratio, and industry. The results suggest that, for specific industries, return on assets is a necessary condition for companies with leverage to reduce the cost of debt due to their sustainability profile and consequently boost their ROE.

show abstract

“…showing the association between equity value and profitability (RNOA) in the residual income valuation model, Nissim and Penman [2001] highlight how an understanding of the trend and persistence of RNOA and its components assists with valuation and forecasting. Fairfield and Yohn [2001] provide evidence that the DuPont disaggregation provides incremental information for estimating one-year-ahead changes in RNOA.…”

Section: Forecasting Profitability In the Fsa Literaturementioning

confidence: 99%

Improving Profitability Forecasts with Information on Earnings Quality

Demmer

2015

SSRN Journal

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractPrior literature documents the usefulness of the DuPont disaggregation for predicting firms' future profitability, operating income, and stock market returns. In addition, research also emphasizes the importance of earnings quality information. However, there is a lack of research examining how earnings quality affects forecasts of profitability. This paper explores whether different earnings quality factors moderate the accuracy of profitability forecasts. This study contributes to the existing literature along three dimensions. First, contrary to financial statement analysis studies, I find that changes in profit margin provide incremental information for predicting changes in future return on assets. After controlling for earnings quality factors, the incremental usefulness of this accounting signal increases significantly. Second, this paper contributes to the earnings quality literature by providing an approach as how to include this information into forecasts of profitability. In doing so, I incorporate the main drivers of earnings quality (i.e. fundamental performance and the accounting system) into profitability forecasts. Last, the paper adds to the literature on how capital market participants perceive accounting information. I document that both analysts and investors appear to efficiently incorporate earnings quality information in their investment decisions. JEL classification: M41

show abstract

Ratio Analysis and Equity Valuation

Cited by 216 publications

References 28 publications

The value-relevance of disclosed summarised financial information of listed associates

The value-relevance of disclosed summarised financial information of listed associates

Sustainability Matter and Financial Performance of Companies

Improving Profitability Forecasts with Information on Earnings Quality

Contact Info

Product

Resources

About