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Approximately five percent of firms in each year have negative operating profit margins
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shows that firms with higher proportions of accruals in current earnings are more likely to report decreases in operating profitability the following year. Based on evidence in Fairfield
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We do not wish to discount the descriptive power of the disaggregation for understanding a firm's strategy, or its usefulness as a management tool. For a discussion along these lines, see Selling and
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We also ran the analyses controlling for sales growth. The conclusions of the paper are not affected by the inclusion of prior sales growth as an explanatory variable
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Transitory Accounting Items: Information Content and Earnings Management
Financial statement analysis textbooks advocate disaggregating profitability into asset turnover and profit margin in performing financial analysis. In spite of the prominence of this technique, there is no evidence demonstrating its usefulness in a forecasting context. We provide evidence that disaggregating return on assets into asset turnover and profit margin does not provide incremental information for forecasting the change in return on assets one year ahead, but that disaggregating the change in return on assets into the change in asset turnover and the change in profit margin is useful in forecasting the change in return on assets one year ahead.
Review of Accounting Studies – Springer Journals
Published: Oct 3, 2004
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