This paper aims to provide a foundation for the notion of economic rate of return and investigate its relations with accounting rates of return. Introducing the notion of depreciation class (the set of depreciation schedules with the same aggregate book value) it is shown that the mean of the...

Counterfactual conditionals are cognitive tools that we incessantly use during our lives for judgments, evaluations, decisions. Counterfactuals are used for defining concepts as well; an instance of this is attested by the notions of opportunity cost and excess profit (residual income), two...

This paper deals with the problem of modelling in a formal way the concept of excess profit, also known as residual income. A common idea is that excess profit is an unequivocal concept, being the difference between profit and costs, where all types of costs are taken into account, included the...

This study describes a comprehensive profitability analysis that introduces several novel ratios and decompositions. Key innovations relate to the separation and analysis of activities other than operating and financing, and, most importantly, to the decomposition of operating profitability....

Previous literature on earnings management has examined the maintained hypothesis that firms barely beating earnings benchmarks are earnings manipulators with earnings before accounting manipulation otherwise slightly below their benchmarks and has implemented research designs that treat all...

We ask whether the quality of internal information matters for investment decisions. We predict that investment is more sensitive to internal profit signals and less sensitive to external price signals when managers have higher quality internal information. Consistent with recent theoretical and...

We show that the standard notion of residual income (RI) does not fulfill additive coherence. This gives rise to ambiguities and inconsistencies. The pitfall resides in the capital charge, which blends a non-market value with a market rate. We solve the problem by using a capital charge based on...

A comprehensive mathematical treatment of the profit elasticity measure of the degree of operating leverage {with special emphasis on the operating break-even point (s)} considering linear and non-linear revenue functions and non-linear (operating) cost functions {yielding non-linear (operating)...

This paper investigates the robustness of post-earnings-announcement-drift (PEAD) on a price signal perspective, unlike the traditional literature that focuses on fundamental signal. The studied period is 2003-2015, for four main US indices. The results suggest that some economic agents are too...

The PER is the most commonly used parameter in the stock market. The PER is the result of dividing the equity market value by the company's profit after tax.The PER depends on a number of factors, some of which are out of the company's control, such as variations in interest rates, and others...