Foundations and Trends® in Accounting
EARNINGS, EARNINGS GROWTH AND VALUE
by James Ohlson & Zhan Gao (Arizona State University, USA)
Earnings, Earnings Growth and Value presents a model of earnings and dividends leading up to the core principle that growth in earnings explains the price to forward-earnings ratio. This model is referred to as the OJ (Ohlson and Jeuttner-Nauroth) model. The OJ model takes into account two growth measures of earnings — the near term and the long term — to explain the price to forward-earnings ratio. Further, the model allows for a broad set of dividend policies.
Earnings, Earnings Growth and Value starts from the basics and derives the valuation formula which shows how value depends on earnings and their growth. Some of the topics developed here are include dividend policy irrelevancy (DPI), how one extends the model to incorporate an underlying information dynamic, accounting rules and their influence on the model, and ways in which the model can be extended to reflect operating vs. financial activities.
Earnings, Earnings Growth and Value should be required reading for researchers in accounting and finance with an interest in accounting theory, equity valuation and financial accounting.
Published by Now Publishers and marketed by World Scientific
Contents:
- Introduction
- The OJ Model: An Overview
- Basics of the OJ Model
- The
OJ Model and Dividend Policy Irrelevancy
- The Labeling of xt as Expected Earnings
- Capitalized Expected Earnings as an Estimate of Terminal Value
- The OJ Model and Cost of Equity Capital
- Accounting Rules and the OJ Formula
- Information Dynamics that Sustain the OJ Model
- Operating Versus Financial Activities
- Appendix
- Acknowledgements
- References
Readership: Postgraduates and professionals.
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