Value Relevance of DuPont Identity

2017 ◽  
Vol 7 (2) ◽  
pp. 48
Author(s):  
Pradeep Kumar Gupta
Keyword(s):  
Stock Returns ◽  
Value Relevance ◽  
Stock Exchange ◽  
Accounting Information ◽  
Empirical Support ◽  
Operating Efficiency ◽  
Valuation Theory ◽  
Financial Leverage ◽  
Return On Equity ◽  
Use Efficiency

This study provides an empirical support to the relevance of very prevalent and well-established almost a century ago the DuPont Identity in the context of India, one of big 10 emerging markets (Garten, 1997). The DuPont Identity, a familiar form of financial statement analysis (Soliman, 2008) for use in equity valuation (Nissim and Penman, 2001), decomposes the return on equity (ROE) into three multiplicative components: net profit margin (operating efficiency), assets turnover ratio (asset use efficiency) and equity multiplier (financial leverage). The present study is based on the valuation theory which considers the viewpoint of equity investors to empirical investigate the value relevance of accounting information (Beisland, 2009). In this study, value relevance of three measures of accounting information used in the DuPont Identity is investigated for 228 manufacturing firms listed in National Stock Exchange (NSE) of India over a period of ten years from 2006-07 to 2015-2016. The findings indicate that the firms should focus on asset use efficiency and financial leverage components of DuPont Identity since a statistically significant impact of these two components on the stock returns is found. The strategic use of asset efficiency and financial leverage inevitably ensures the operating efficiency of the firms. This empirical investigation is an addition to the value relevance literature with an important insight to the firms and the participants of stock market about the usefulness of DuPont Identity in the context of India.

scholarly journals Value Relevance of Accounting Information in Explaining Stock Returns in Sri Lanka

2017 ◽  
Vol 12 (10) ◽  
pp. 223
Author(s):  
Yathra Mullage Chithrasheeli Gunaratne ◽  
P. A. Niluka Surangi Anuradha
Keyword(s):  
Sri Lanka ◽  
Stock Returns ◽  
Performance Measures ◽  
Value Relevance ◽  
Stock Exchange ◽  
Accounting Information ◽  
Performance Measure ◽  
Investment Strategies ◽  
Return On Equity ◽  
Accounting Performance

The value relevance of accounting information is an important area in accounting researches. However the literature provides contradictory conclusions on the value relevance of accounting information in different stock exchanges and there is a very limited knowledge in this regard in Sri Lankan context. Hence this study endeavored to investigate the value relevance of accounting information in explain stock returns considering three traditional accounting performance measures: Earnings Per Share (EPS), Return on Equity (ROE) and Return on Investment (ROI) as the proxy for accounting information. The study was conducted with the hypothesis that the traditional accounting performance measures are significant in explaining stock returns in Sri Lanka. A sample of 1695 firm year observations were used for the study covering 113 companies in Colombo Stock Exchange for fifteen years period from 1999 to 2013. This study used Easton and Harris (1991) formal valuation model. Panel data regression analysis technique was applied to test the relative information content of each performance measure to identify the best performance measure which could explain the stock returns in Sri Lanka. The study revealed that the EPS and ROI are significant performance measures and the EPS is the best performance measure which could explain the significant variations of stock returns in Sri Lanka. The results suggest that the market participants in the Colombo Stock Exchange should pay more attention on EPS and ROI. Meantime they must consider other determinants to develop their investment strategies.

scholarly journals The impact of the Law on Strengthening the Security of Financial Relations on the value relevance of accounting information in Tunisian Stock Exchange

2013 ◽  
Vol 3 (1) ◽  
pp. 42
Author(s):  
Mohamed Rafik Ben Ayed ◽  
Ezzeddine Abaoub
Keyword(s):  
Stock Returns ◽  
Value Relevance ◽  
Stock Exchange ◽  
Explanatory Power ◽  
Accounting Information ◽  
Financial Statements ◽  
Accounting Earnings ◽  
The Law ◽  
Security Returns ◽  
The Impact

This paper empirically investigates the value relevance of accounting earnings measures in the emerging capital market of Tunisia. The issue is tested by estimating the regression of annual security returns on different earnings measures extracted from income statements. In Tunisia, firms prepare their financial statements in accordance with Tunisian Accounting Standards (TAS) which are inspired from International Financial Reporting Standards (IFRS). Based on a sample of 389 firm years for firms listed on the Tunis Stock Exchange (TSE) during the period 1997-2008 and using pooled regressions, we find that accounting earnings measures are weakly related to security returns. However, we find that earnings before taxes has the higher explanatory power for stock returns. This is perhaps due to the fact that financial statements are often influenced by taxation rules (ROSC, 2006; section 42). Further, we find that cash flow from operations and Total accruals are not value relevant for valuation. We tested whether the value relevance of each measure of performance improved after the adoption in October 2005 of the Law on Strengthening the Security of Financial Relations (LSSFR). Consistent with prior US and other international findings, results show that the explanatory power and the magnitude of the slope coefficient of each measure increased when we take into account for the impact of this enactment. However, the increase is not statistically significant. This is perhaps due to the employed specification of the relation between security returns and accounting information.

Effect of Employee Expenses on Usefulness of Accounting Information

2015 ◽  
Vol 1 (1) ◽  
pp. 161
Author(s):  
Horiye Yaghoobi ◽  
Mohsen Moradi ◽  
Mehdi Jabbari Nooghabi
Keyword(s):  
Stock Returns ◽  
Value Relevance ◽  
Stock Exchange ◽  
Accounting Information ◽  
Target Population ◽  
Stock Value ◽  
Income Statement ◽  
Earnings Predictability ◽  
Administrative Expenses ◽  
The Cost

In this study, the employee expenses model and earnings model are compared in order to determine whether or not putting the employee expenses in the earning predictability models and high relevance of accounting information to stock value, increases usefulness of accounting information. We use the term ‘earnings model’ to refer to the consideration of earnings alone, for determining earnings predictability as well as value relevance. The term ‘employee model’ refers to the consideration of earnings and employee expenses in determining earnings predictability as well as value relevance. In this study, the cost of employees’ salary, which is shown under the heading of General and administrative expenses in the income statement, is the only monetary information that is available for us and relevance value is determined through the effectiveness of the models in determining stock returns. After applying these limitation, companies which were active in Tehran Stock Exchange from2003 to 2012 were chosen as the target population. The results showed that compared to earnings model, the employee expenses model provides a better prediction of the earnings but it isn’t a better model for predicting the stock relevance (related to the return of the stock).

scholarly journals Analisis Pengaruh Beta Saham, Debt To Equity Rasio (DER) terhadap Return On Asset (ROA) Perusahaan di Bursa Efek Indonesia

2019 ◽  
Vol 28 (02) ◽  
pp. 198-212
Author(s):  
Muhammad Ikhsan ◽  
Eko Budi Santoso
Keyword(s):  
Stock Returns ◽  
Stock Exchange ◽  
Systematic Risk ◽  
Net Income ◽  
Financial Leverage ◽  
Return On Equity ◽  
Market Index ◽  
Sample Data ◽  
Equity Ratio ◽  
Excess Stock Returns

Perhitungan rasio keuangan penting bagi perusahaan.. Investor dapat melihat kinerja perusahaan apakah perusahaan berkinerja baik dibandingkan dari rata-rata industri. Rasio adalah ukuran perbandingan antara pos dalam laporan keuangan dengan pos lainnya. Misalnya rasio profitabilitas yaitu Return on Asset makin tinggi ROA makin baik karena Net income makin tinngi. Demikian juga Debt to Equity ratio yaitu  berapa batasan berhutang yang ideal yaitu financial leverage berapa ukuran maksimal sehingga net income maksimal.Resiko sistematis atau Beta saham didapat dari slope hasil regresi antara ekses return saham dengan ekses pasar adalah ukuran resiko juga dalam berinvestasi saham . Resiko adalah hal yang menyimpang dari target yang kita inginkan atau sesuatu pencapaian yangberbeda dari hal atau sesuatu yang kita inginkan atau harapkan. Contoh Resiko berinvestasi adalah jika kita menderita kerugian atau kehilangan pokok yang kita tanankan. Resiko yang mempengaruhi saham di bursa yaitu bisa resikosistematik atau bisa juga resiko unsistematis atau resiko di dalam perusahaan misalnya manajemennya. Resiko sistematisjuga disebut resiko pasar yang menimpa semua saham seperti pengaruh dari luar yaitu inflasi, kurs mata uang atau kebijakan pemerintah.Penelitian ini akan membahas apakah ada pengaruh Debt to equity ratio dan beta saham/ resiko sistematis terhadap nilai ROA karena bagi perusahaan net income adalah penting juga bagi investor untuk membeli saham.Sampel datayang diambil penulis sebanyak 35 macam saham dengan cara mengambil secara acak saham-saham yang ada di Bursa efek Indonesia. Data sampel akan diolah dengan statistik menjadi informasi dalam menjawab permasalahan  dengan  Aplikasi SPSS edisi 19. Hasil penelitian ini yaitu secara bersama-sama variabel Debt to Equity ratio dengan Beta saham mempunyai pengaruh yang signifikan terhadap Return on Equity (ROA) perusahaan di Bursa Efek Indonesia Calculation of finance ratios is important for the company. Investors can view the performance of the company if the company performs well compared to the average industry. The ratio is a measure of the ratio between account in the financial statements with another accounts. For example profitability ratios Return on Assets( ROA) higher is better because Net income increasing. Likewise with Debt to Equity ratio, is how much restriction ideal loanlikethe ideal size of financial leverage to maximum net income. Beta is a systematic risk obtained from the slope of the regression results between excess stock returns with excess return of the capital market index. This is a measure of risk in stock investing. Risk is something that deviates from the target that we want or something less achievement from thing or something we want or expect. Examples of investment risk is if we suffer any loss of money  that we invest. Risks of invest stocks is a systematic risk or a unsystematis risk for examplelike a management in the company. Systematic risk is also called market risk hapend to all shares like outside influence,for example inflation, foreign exchange rates or government policy. This research will address the influence Debt to equity ratio and beta stocks / systematic risk to the value of Return of Asset (ROA) because for the company's net income is important for investors to decide buy shares. Sample data is retrieved author as many as 35 kinds of stocks by taking random stocks that exist in the Indonesian Stock Exchange. The sample data will be processed with statistical information in the answer problems with SPSS applications editions 19. Results of this research is jointly variable Debt to Equity ratio with Beta stocks have a significant influence on Return on Equity (ROA) companies in Indonesia Stock Exchange

scholarly journals Financial Analysis Of Bank Al Bilad

2011 ◽  
Vol 10 (3) ◽  
pp. 9
Author(s):  
Carl B. McGowan, Jr. ◽  
Andrew R. Stambaugh ◽  
Zunaidah Sulong
Keyword(s):  
Financial Analysis ◽  
Profit Margin ◽  
Total Asset ◽  
Operating Efficiency ◽  
Financial Leverage ◽  
Return On Equity ◽  
Asset Turnover ◽  
Use Efficiency

This paper presents a model for the financial analysis of a bank based on the DuPont system of financial analysis. The DuPont system of financial analysis is derived from an analysis of return on equity that consists of three parts: 1) operating efficiency as measured by profit margin, 2) asset use efficiency as measured by total asset turnover, and 3) financial leverage as measured by the equity multiplier. The analysis covers the period from mid 2005 to 2009. The DuPont system of analysis assesses the performance of the Arabian institution since its establishment in the Spring of 2005.

PENGARUH CURRENT RATIO, RETURN ON EQUITY DAN EARNING PER SHARE TERHADAP RETURN SAHAM PADA PERUSAHAAN MANUFAKTUR YANG TERDAFTAR DI BURSA EFEK INDONESIA TAHUN 2010 – 2019

2021 ◽  
Vol 5 (1) ◽  
Author(s):  
Susi Lusiana
Keyword(s):  
Data Collection ◽  
Stock Returns ◽  
Stock Return ◽  
Stock Exchange ◽  
Financial Statements ◽  
Financial Ratios ◽  
Manufacturing Companies ◽  
Current Ratio ◽  
Return On Equity ◽  
Earnings Per Share

The study of this research is to determine the effect of returning shares in manufacturing companies. This study uses the financial ratios contained in the company's financial statements. The financial ratios used in this study are the current ratio, return on equity, and earnings per share to stock returns in manufacturing companies listed on the Indonesian stock exchange in 2010-2019. This type of research used in this research is quantitative and the analytical method used is purposive sampling using SPSS 21 as many 10 manufacturing companies in the food, beverage, textile, rubber goods (tires), fisheries, and agriculture sectors. Data collection techniques are used by retrieving data through the website www.idx.co.id. The results showed that Current Ratio (CR) has a positive and significant effect on Stock Returns, Return On Equity (ROE) has a positive and significant effect on Stock Returns, and Earning Per Share (EPS) has a negative and significant effect on Stock Return.

scholarly journals Does Financial Performance Matter? Evidence on the Impact of Liquidity and Firm Size on Stock Return in Indonesia

2020 ◽  
Vol 11 (4) ◽  
pp. 546
Author(s):  
Mochammad Chabachib ◽  
Ike Setyaningrum ◽  
Hersugondo Hersugondo ◽  
Intan Shaferi ◽  
Imang Dapit Pamungkas
Keyword(s):  
Stock Returns ◽  
Firm Size ◽  
Significant Relationship ◽  
Stock Return ◽  
Stock Exchange ◽  
Mediating Effect ◽  
Return On Equity ◽  
Stock Investment ◽  
Equity Ratio ◽  
The Impact

In the modern era, stock investment can attract domestic investors or foreign investors. The objective is to invest their funds at the capital market that expect higher stock returns. The study aims to analyze factors that can affect stock returns and know the mediating effect of return on equity. The object of this research is the property and real estate sector that is listed on the Indonesia Stock Exchange from 2013 to 2018. This research used debt to equity ratio, current ratio, total asset turnover, firm size as independent variables and stock returns as dependent variables. Path analysis is used as reseach method tools with SMART PLS.The result says that debt to equity ratio and return on equity has a positive significant relationship with stock return, meanwhile firm size has a significant negative significant relationship with stock returns. Furthermore, return on equity can mediate the relationship between debt and equity ratios to stock returns.

scholarly journals PROFITABILITAS TERHADAP RETURN SAHAM

2018 ◽  
Vol 19 (3) ◽  
pp. 36
Author(s):  
Happy Sista Devy
Keyword(s):  
Financial Performance ◽  
Stock Returns ◽  
Return On Investment ◽  
Stock Return ◽  
Stock Exchange ◽  
Investment Decision ◽  
Control Variable ◽  
Return On Equity ◽  
Ratio Size ◽  
Return On Sales

The development of the capital market is currently followed by the development of the stock market is increasingly in demand by investors as well, seen from data on Indonesia Stock Exchange (IDX) which shows that the stocks included in the sharia has increased. An investor will do the analysis to make an investment decision. The analysis is technical and fundamental. One of the fundamental analysis is profitability ratio analysis issued by the company. Good financial performance will be the information used as a positive signal by investors, because companies that have good financial performance will provide more benefits for investors. The purpose of this research is to examine and analyze profitability variables on stock returns in Jakarta Islamic Index (JII) period 2012-2016. Population of this research is a company included in the Jakarta Islamic Index (JII). This research using sample criteria, we obtained a sample of 21 companies included in the Jakarta Islamic Index (JII) for the period of 2012-2016 and published annual financial report data on Indonesia Stock Exchange (IDX) required during the study. The variables used in this research are earning per share (EPS), return on equity (ROE), return on asset (ROA), return on sales (ROS), return on investment (ROI), size as control variable, and stock return as the dependent variable. Result of this research show that investor on Jakarta Islamic Index (JII) see simultaneously the profitability ratio as a signal for investment decision making. Variable size can be used as control variable in that used in this research. Profitability ratios that are taken by investors are return on assets (ROA), earnings per share (EPS), and return on investment (ROI). So that should be a special attention for companies incorporated in the Jakarta Islamic Index (JII) to increase investor interest to invest in the company. Keywords : stock return, profitability ratio, size.

Corporate governance and value relevance of accounting information

2020 ◽  
Vol 36 (2) ◽  
pp. 249-262
Author(s):  
Hesham I. Almujamed ◽  
Mishari M. Alfraih
Keyword(s):  
Financial Reporting ◽  
Value Relevance ◽  
Accounting Information ◽  
Empirical Support ◽  
Board Size ◽  
Content Type ◽  
Book Value ◽  
Board Characteristics ◽  
Market Participants ◽  
The Impact

Purpose This paper aims to explore how the characteristics of the board of directors (BoD) shape earnings and book value information available to market participants. Design/methodology/approach The authors investigated the impact of board size, presence of non-executives and role duality as proxies of effective corporate governance on the value relevance of financial reporting for 178 firms on the Kuwait stock exchange in 2013. Regression analysis based on Ohlson’s (1995) valuation model was used to test hypotheses. Findings The authors found that board size was significantly associated with company value and that Kuwaiti firms with large boards increased the value-relevance of earnings and book value. The influence of role duality was positive although not significant. The presence of non-executives on the board had a negative correlation with market value (not significant). Research limitations/implications These findings deliver empirical support for the prediction that the characteristics of the BoD improve the value relevance of financial reporting. Limitations such as small sample size and one-year duration of the study did not negate the basic findings, however. Future studies will use larger samples, longer duration and additional board characteristics. Practical implications This study provides empirical support for the hypothesis that board size influences market valuation. This study may benefit managers, investors and other decision-makers. Originality/value This study delivers empirical evidence on the impact of board characteristics on the value relevance of accounting information. It will be useful for regulators and market participants monitoring the influence of board characteristics on the value relevance of accounting information.

scholarly journals Association between Accounting Numbers and Value of Food and Beverages Firms in Nigeria

2015 ◽  
Vol 7 (12) ◽  
pp. 245
Author(s):  
Nyor Terzungwe ◽  
Nasiru Rabiu
Keyword(s):  
Value Relevance ◽  
Stock Exchange ◽  
Investment Decision ◽  
Market Price ◽  
Accounting Information ◽  
Financial Statements ◽  
Annual Reports ◽  
Market Values ◽  
Food And Beverages ◽  
Accounting Numbers

<p>The degree of statistical relationship between the contents of financial statements and market price of equity is what is termed Value relevance of accounting information. It explains stock market measures using financial information variables and it is a very useful guide to investors in pricing of shares. This study examines the extent of association between accounting information variables of earnings, dividend and book value of equity and market value of listed Food and Beverages firms in Nigeria. Data were collected from the published annual reports of the sampled firms and their market values obtained from the official daily list of the Nigerian Stock Exchange (NSE) over a period of 10 years (2001-2010). Using multivariate regression as technique for data analysis, the study established that accounting information of Food &amp; Beverages companies in Nigeria is value relevant. Accordingly, the study recommends the use of financial statements figures of Food and Beverages firms for investment decision.</p>

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