Skittish investors will not be surprised to learn that the bottom line of a company’s income statement fails to tell the whole story. New research by Jan Barton, an associate professor of accounting at Emory University’s Goizueta Business School, suggests that subtotals near the center of the income statement, such as operating income, have a much stronger association with contemporaneous stock returns than do the top-line and bottom-line numbers. In a paper entitled, “Which Performance Measure Attributes Do Investors around the World Value the Most—and Why?” slated for publication in The Accounting Review in May, Barton and co-authors Grace Pownall, professor of accounting and associate dean of the doctoral program at Goizueta, and Bowe Hansen of the University of New Hampshire, argue that no one single performance measure can serve as a Rosetta Stone for investors as they shop for stocks around the world. Still, Barton says, the research suggests that helpful metrics tend to be those that quickly and directly reflect information about a firm’s future cash flow.
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