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Real ploughback earnings as an indicator of enterprise performance: FAS no. 33 disclosures revistited

Kathleen A. Farrell (Department of Finance, University of Nebraska‐Lincoln, Lincoln, Nebraska)
Gordon V. Karels (Nebraska Bankers Association, College Professor of Banking, Lincoln, Nebraska, University of Nebraska‐Lincoln, Lincoln, Nebraska‐Missoula, USA)
Kenneth W. Montfort (Department of Finance, College of Business, University of Northern Colorado, Greeley, Colorado)
Christine A. McClatchey (Department of Finance, College of Business, University of Northern Colorado, Greeley, Colorado)

Managerial Finance

ISSN: 0307-4358

Article publication date: 1 August 2000

Abstract

Existing and potential investors are vitally interested in the improvement of their wealth prospects. Receipt of cash, whether in the form of cash dividends or capital gains, represents fulfilment of this expectation. Such fulfilment is only possible when an enterprise registers growth in its resource base. Reported income is considered a good indicator of success achieved by an enterprise because it represents increase in available resources. An important link between reported income and stock prices is the link between future earnings and current earnings. This study utilizes data from FAS No. 33 to develop real ploughback measure indicating a firms ability to continue its operations successfully and to enhance its future earnings potential. The results of the study show that the market uses sophisticated models in evaluating the signal contained in ploughback earnings.

Keywords

Citation

Farrell, K.A., Karels, G.V., Montfort, K.W. and McClatchey, C.A. (2000), "Real ploughback earnings as an indicator of enterprise performance: FAS no. 33 disclosures revistited", Managerial Finance, Vol. 26 No. 8, pp. 13-28. https://doi.org/10.1108/03074350010766819

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MCB UP Ltd

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