Financial statements are outliving their usefulness for investors — and here’s how to replace them
— July 18, 2016
By Baruch Lev
The flip side — surpassing the consensus — boosts the price by merely about half a percentage point.
Face it: reported earnings under GAAP don’t matter as much as they used to.
And it’s not just earnings that have lost relevance for investors. The relationship between share prices and the six most important financial indicators (sales; cost of sales; the selling, general and administrative expenses best known as SG&A expenses; earnings; assets; liabilities) has decreased dramatically over the past 50 to 60 years, as the chart below shows. Our calculations show that financial reports currently provide a mere 5%-6% of investors’ information.
Read the full article as published on MarketWatch.
Baruch Lev is the Philip Bardes Professor of Accounting and Finance.