An Investigation of the Predict Ability and Information Content of Incom Statement Components.

Abstract

The main purpose of this study is to evaluate the ability of components of income statement in predicting of net earnings and stock returns. To achieve this objective change in annual net earnings separated to changes in reported sales, gross profit and other expenses and the predict ability and explanatory power of overall net income model were compared with net income separate models. This study selected 51 companies listed in Tehran Stock Exchange in the period 1387-1383 was conducted. The results show that in prediction of future earnings and stock returns explain the change in sales, gross profit and other costs, have higher predict ability and information content than the net earnings. Changes in sales and gross profit have higher ability to predict and information content than operating profits. Also, changes in operating income have higher information content and the ability to predict than net income. According to the results is concluded that the separation of earnings components increased predict ability and information content of earnings.

Keywords

• predict ability
• information content
• net earnings
• stock returns
• components of income statement