Financial Analysis and the Predictability of Important by Ahmed Riahi-Belkaoui

By Ahmed Riahi-Belkaoui

Financial research, according to ratio research, has been used as a device for examining the monetary power of companies. even if ratio research is usually used as a univariate approach, the accounting and finance literature has developed to incorporate multivariate-based types in monetary research, and those versions can be utilized to give an explanation for very important monetary occasions and infrequently expect them. hence, in an exhaustive insurance of the industrial occasions to which they are often utilized, Riahi-Belkaoui discusses those types in a fashion that may have precise worth to company administration, monetary planners, and to their colleagues within the educational neighborhood who focus on enterprise and financial analysis.

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The search for fundamentals is however, different, focusing on a set of financial variables (fundamentals) popularized in the ‘‘textbook’’ literature as useful in security valuation. SUPPORT FOR THE USE OF POPULAR RATIOS This chapter relies instead on a search for fundamentals guided by the ‘‘popularity’’ of financial ratios in major financial analysis texts. Various reasons may support this choice. First, the inclusion of these ‘‘popular’’ ratios in financial analysis texts is generally based on their theoretical explanations of fundamental relationships and signals experienced by the firms.

D. Various drawbacks of LIFO could outweigh possible tax benefits. For more information see M. H. Granof and D. G. Short, ‘‘For Some Companies, FIFO Accounting Makes Sense,’’ Wall Street Journal, August 30, 1982, p. 10. 8. Accounting Principles Board, Opinion No. 30 (1973), paragraph 15, recommends the recognition of the net income, gains, and losses (net of income tax effects) at the measurement date if it is loss and at the time of realization if it is a gain. This treatment follows the well-known conservatism principle, which recommends recognizing losses as soon as possible and postponing the recognition of gains until realization.

Second, even when the decision model is well defined, a criterion for the choice of relevant information is Financial Analysis and the Predictive Approach 19 missing. Intended to resolve this second problem, the criterion of predictive ability allows us to determine which accounting measure produces the better decisions. Let us note here the fundamental distinction between prediction and the decision. It is possible to predict without making a decision, but it is not possible to make a decision without a prediction.

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