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Article
Publication date: 10 February 2020

Ayman E. Haddad, Fatima Baalbaki Shibly and Ruwaidah Haddad

The purpose of this study is to investigate the voluntary disclosure of accounting ratios in the corporate annual reports of manufacturing firms in the Gulf Cooperation…

Abstract

Purpose

The purpose of this study is to investigate the voluntary disclosure of accounting ratios in the corporate annual reports of manufacturing firms in the Gulf Cooperation Council (GCC) and determines whether an association exists between voluntary disclosure and firm-specific characteristics namely, size, profitability, leverage, liquidity and efficiency.

Design/methodology/approach

A sample of 53 GCC listed manufacturing firms and 263 firm-year observations were observed over the period 2011 to 2015. A count data regression (Poisson) with incident rate ratios was used to identify the relationship between firms’ voluntary disclosures of accounting ratios and other firm-specific characteristics.

Findings

During the period under review, the voluntary disclosure of accounting ratios provided in annual reports of GCC firms were found to be exceedingly low. On average, a GCC company discloses at most two accounting ratios in its annual reports. The results also show that the profitability ratios are the most popularly reported ones. Controlling for family board domination, the results also reveal that structure-related variables (firm size and leverage) are positively associated with accounting ratio disclosures. However, performance-related variables (profitability, liquidity and efficiency) have no significant effect on disclosures. The authors conclude that signaling theory as implied in the performance-related variables is not strongly supported in the GCC region.

Originality/value

This is the first known study to investigate the disclosure of accounting ratios and its determinants within the context of GCC. The findings of this study could be beneficial to both agents and principals in assessing the associated risks. The study provides regulators and market participants an understanding of the corporate reporting activities of manufacturing firms in the GCC and who accordingly will be able to consider associated policy implementation.

Details

Journal of Financial Reporting and Accounting, vol. 18 no. 2
Type: Research Article
ISSN: 1985-2517

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Book part
Publication date: 10 November 2020

Sarah Sobhy Mohamed

This chapter aims at examining financial distress issue by designing a comprehensive model to explain and predict financial distress in Egypt. This comprehensive model…

Abstract

This chapter aims at examining financial distress issue by designing a comprehensive model to explain and predict financial distress in Egypt. This comprehensive model incorporates accounting ratios, market-based ratios and macroeconomic ratios. The sample of the existing research includes all the listed firms in two main sectors: basic resources and chemicals. Using logistic regression model, the results showed that adding market ratios and macroeconomic ratios enhances the predictability of the model and accounting information are not sufficient to explain financial distress.

Details

Financial Issues in Emerging Economies: Special Issue Including Selected Papers from II International Conference on Economics and Finance, 2019, Bengaluru, India
Type: Book
ISBN: 978-1-83867-960-6

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Article
Publication date: 15 August 2008

Eric Melse

This paper aims to extend an earlier analysis of the profitability of an individual firm operating in the professional services industry from the perspective of the…

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1778

Abstract

Purpose

This paper aims to extend an earlier analysis of the profitability of an individual firm operating in the professional services industry from the perspective of the triple‐entry framework of the momentum accounting theory of Yuji Ijiri.

Design/methodology/approach

The paper presents a “common‐size‐format” model of balance‐sheet momentum, an approach typical of financial statements' mathematical analysis.

Findings

Common‐size‐format momentum ratios offer an alternative measurement of (the change of) business performance. They model stabilizing phenomena that might develop very differently from ratios like return on total assets or return on equity and thus provide important informational signals to the analyst of financial statements. The common‐size‐format ratio of net wealth momentum herein discussed is proposed as a supplemental measurement for business performance analysis.

Originality/value

The paper discusses a new method for performance measurement and risk analysis.

Details

The Journal of Risk Finance, vol. 9 no. 4
Type: Research Article
ISSN: 1526-5943

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Article
Publication date: 1 January 1996

John K. Courtis

Annual changes in financial ratio values are susceptible to ambiguous interpretation because of different applications of generally accepted accounting principles and…

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1517

Abstract

Annual changes in financial ratio values are susceptible to ambiguous interpretation because of different applications of generally accepted accounting principles and different numerator/denominator component selections. The paper investigates financial ratio disclosure within annual reports, and the extent to which the underlying ratio components vary within and between companies, within industries and over time. Financial ratios disclosed voluntarily within the annual reports of 101 listed public companies in Hong Kong between 1988–1992 were examined. Findings indicate numerator‐denominator inconsistency between companies and industries at a point in time, but generally consistent within companies across time. Also, sets of ratios reported between years are not constant. Ten potential research questions about financial ratios have been identified.

Details

Asian Review of Accounting, vol. 4 no. 1
Type: Research Article
ISSN: 1321-7348

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Abstract

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Handbook of Transport Strategy, Policy and Institutions
Type: Book
ISBN: 978-0-0804-4115-3

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Article
Publication date: 4 April 2016

Judy Kay Beckman

The purpose of this paper is to demonstrate the expected effect of diverging accounting requirements and practices on firms in two industries – construction and retailing…

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2500

Abstract

Purpose

The purpose of this paper is to demonstrate the expected effect of diverging accounting requirements and practices on firms in two industries – construction and retailing – which typically undertake different types of leases, namely, equipment and real estate, respectively. The paper also discusses how the new standards will provide expanded disclosures to aid this financial statement analysis.

Design/methodology/approach

The research demonstrates how to estimate information comparable to that produced under IFRS from US GAAP financial statements and estimates the significance of the impact on key financial statement ratios.

Findings

Key profitability ratios – return on assets and return on equity – generally improve over the time period 2007-2013 while interest coverage drastically deteriorates particularly for retailing firms. This finding contrasts with what some view as the Financial Accounting Standards Board’s reason for its choice of income statement presentation – to avoid the front-end loading of costs that ensues from accounting for leases as one would any other long-lived asset acquired through long-term financing.

Practical implications

Current IFRS and US GAAP requirements do not provide sufficient information to estimate lease accounting changes for those firms which have no long-term debt other than long-term leases. Therefore, the estimates presented in this analysis are limited below what will be possible to do under new accounting requirements.

Originality/value

The research covers a current topic of new divergence between US GAAP and IFRS requirements for leases. In addition, improvements over analysis techniques currently required that will be possible with new financial statement disclosures also are discussed.

Details

International Journal of Managerial Finance, vol. 12 no. 2
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 1 January 2003

William Hopwood and James C. McKeown

This study presents theoretical and empirical analyses to suggest a previously‐unknown size‐related contingency in the relationship between market variables and various…

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1249

Abstract

This study presents theoretical and empirical analyses to suggest a previously‐unknown size‐related contingency in the relationship between market variables and various commonly‐used financial ratios, including Net Income/Total Assets, Current Assets/Sales, Current Assets/Current Liabilities, Current Assets/Total Assets, Cash/Total Assets, Long‐Term Debt/Total Assets, Accounts Receivable/Sales. The size contingency in this relationship is shown to be due to the cross‐sectional variability of the ratios themselves. Moreover, simply adding a size dummy to the model will not correct for the problem. Empirical results show that the effect is very strong and subjects to severe misinterpretation any study that uses financial ratios on the right‐hand‐side of a linear model.

Details

Review of Accounting and Finance, vol. 2 no. 1
Type: Research Article
ISSN: 1475-7702

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Article
Publication date: 26 April 2013

Chunhui (Maggie) Liu, Grace O'Farrell, Kwok‐Kee Wei and Lee J. Yao

Firms in different countries operate in different business environments and prepare financial statements following, by necessity, their own countries' accounting

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2577

Abstract

Purpose

Firms in different countries operate in different business environments and prepare financial statements following, by necessity, their own countries' accounting standards. Benchmarks for assessing financial ratios of firms in different countries are likely to be different. In conducting financial ratio analyses, each country's unique cultural, business, financial, and regulatory characteristics have to be taken into consideration, for these external factors may exert significant effects on measurements of financial data. This study aims to investigate challenges in comparing financial ratios between Japanese firms and Chinese firms.

Design/methodology/approach

This study compares ten major financial ratios of 75 Chinese firms with financial ratios of 75 matched sample Japanese firms to determine if a common benchmark for each of the financial ratios can be applied to firms in both countries.

Findings

The results show significant differences in liquidity, solvency, and activity ratios between firms from these two countries. Further examination of differences in accounting standards, economic, and institutional environments between these two countries suggests that these external factors have significant effects on financial ratios and may have contributed to the observed differences.

Originality/value

This study is among the first to investigate the comparability of ratios between Japanese firms and Chinese firms to uncover potential challenges and warn investors of such challenges.

Details

Journal of Asia Business Studies, vol. 7 no. 2
Type: Research Article
ISSN: 1558-7894

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Article
Publication date: 25 October 2011

Elisa García Jara, Amparo Cuadrado Ebrero and Rolando Eslava Zapata

This paper aims to analyze the quality of financial information using financial and economic ratios, assessing if the quality is affected by financial reporting standards…

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4650

Abstract

Purpose

This paper aims to analyze the quality of financial information using financial and economic ratios, assessing if the quality is affected by financial reporting standards. A group of factors that allow proving of the capacity of ratios to measure accounting information quality – and thus facilitating the analysis process to the groups of users – is also determined.

Design/methodology/approach

Using a sample of 111 companies from the Madrid Stock Exchange and 32 from Eurostoxx50, descriptive analysis and non‐parametric variance analysis were carried out during the period 2005‐2007. At the same time, reduction data techniques, specifically principal components analysis (PCA), were performed to detect the underlying main factors for the year 2007.

Findings

There is an indication that financial information quality is affected by financial reporting standards. Additionally, there is a group of factors that show an alternative to analyze accounting information.

Practical implications

This study provides evidence to measure financial information quality and the results can be beneficial to accounting users, as well as contributing to the literature related to this topic.

Originality/value

Empirically, this study shows that accounting information is affected by financial reporting standards.

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Article
Publication date: 1 May 1996

Malcolm Smith and Richard Taffler

There has been limited study to date of the effectiveness of alternative methods of presenting accounting information for financial decision purposes. Explores the…

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3051

Abstract

There has been limited study to date of the effectiveness of alternative methods of presenting accounting information for financial decision purposes. Explores the relative usefulness of the schematic face, compared with conventional presentation formats, for communicating the multivariate information set conveyed in a set of financial statements. Compares the ability of accounting statement users of different levels of sophistication to “predict” bankruptcy and financial health of companies on the basis of cartoon faces, accounting statements and financial ratios. Presents evidence that the schematic representations are processed more quickly than either of the more traditional methods of information presentation, and with no loss of accuracy, by all three different types of user examined. Concludes by arguing the potential generalizability of the cartoon graphic approach to more complex financial decision applications, such as those in banking and financial analysis.

Details

Accounting, Auditing & Accountability Journal, vol. 9 no. 2
Type: Research Article
ISSN: 0951-3574

Keywords

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