Vladimír Urbánek (Kurzy.cz)
Finance  |  June 15, 2011 11:29:25

Harmful myth smoothed earnings

The management company at all costs try to smooth quarterly earnings, and their steady growth. A slow growth of the last recession brings even greater faith in the fact that these investors prefer steadily increasing profits. Thus, companies will attempt to argue that stability and strategic decisions. In 2002, for example, justify a merger with Conoco Phillips Petroleum and by providing greater stability of earnings during the commodity cycle.

Research shows that these efforts are not beneficial and may even damage the company. If investors actually prefer vyhlazenost profits, companies with such characteristics should Valoation higher multiples. But no such relationship exists. The data shows that the return for firms with lower earnings volatility is higher, but if we take into account growth and return on capital, that relationship disappears.

Full article can be found on the server Patria Online, specifically HERE

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