An investigation of the quality of earnings concept as applied to defense contractors.

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Author
Hauge, Todd Allen
Date
1989-12Advisor
Moses, O. Douglas
Second Reader
Matthews, Danny G.
Metadata
Show full item recordAbstract
This thesis analyzes whether the quality of earnings
concept can be usefully employed in the security analysis of
defense contractors. Background is provided by an extensive
review of the literature relevant to quality of earnings.
Since the quality of earnings concept is very subjective,
specific quantitative measures of quality of earnings are
developed and used in a statistical analysis to validate the
variables as explanatory predictors of a firm's price
earnings (P/E) ratio. The statistical techniques employed
include Pearson's Product Moment Correlation, Spearman's
Rank Order Correlation, stepwise regression and other
multiple linear regression models. Results of the study
suggest that there are significant relationships between
several hypothesized quality of earnings variables and a
firm's P/E ratio. The statistically significant variables
in the final regression models explain between 67.8% and
76.6% of the variation in the P/E ratio. The evidence
indicates that variables related to cash flow, degree of
government business, order backlogs and earnings stability
reflect aspects of a firm's quality of earnings.
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This publication is a work of the U.S. Government as defined in Title 17, United States Code, Section 101. Copyright protection is not available for this work in the United States.Collections
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