The role of the accounting rate of return in financial statement analysis

Article Abstract:

The importance of the accounting rate of return (ARR) in financial statement analysis is examined by placing special emphasis on the ARR's valuation method and consequently deriving an equation for discounted cash flows (DCF). Aside from providing an accurate approximation of the economic rate of return, the ARR's significance lies in the analytical and practical value of its derivation of the DCF formula. Analytically, the DCF equation provides the basics for double-entry bookkeeping. In terms of practicality, the DCF formula allows for the direct use of accounting data in valuations, since current accounting practice would require obtaining future earnings forecasts from historical accounting data, from which future cash flows are consequently estimated.

Methods, Analysis, Financial statements, Return on investment, Rate of return, Discounted cash flow, Bookkeeping

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Investment decisions and the equity accounting standard

Article Abstract:

A proposition is made that the 20 percent ownership rate should be used as the basis for the equity accounting techniques that influence decisions made for company investments. The sample distribution for company investment strategies shows that there is a concentration of positions close to 20 percent. The aspects of 19 to 19.99 percent investees are later compared to the 20 to 20.99 percent investees for dimensions of profit and earnings covariability. Consequently, the extent-of-holding dimension of company investment plans is under the effects of ownership criterion.

Management, Services, Accounting, Investments, Equity (Law)

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