Accounting Theory

The weekly performance of IBM stock presented a contestant growth. One highlight of the falling of stock price in the 6th week in the investment period was when IBM presented the 3rd quarter financial report. The investors weren’t satisfied with the profit report which they expected to be better especially when other IT companies were doing well in the 3rd quarter. One mistake I made was that I didn’t follow closely to the financial report of the company; therefore, I missed the peak of the stock price. From this experience, I learned that financial reports and current news are important indicators of the stock price. By following closely to the current event and analyzing the financial report, investors can maximize the profit and also become more familiar to the market.

The research shows that the earnings announcements of firms within an industry can impact the share prices of other firms in the same industry. This effect has been labelled as the ‘information transfer effect’. The ‘information transfer effect’ highlights the belief that share prices react to public information emanating from various sources—including

Margin of Safety: “Safety Net ” – tells the amount by which sales can be reduced before you reach break -even point. Formulae: Margin of Safety (units) = amount by which total sales can fall before losses are incurred Total Sales – Break-Even Sales Margin of Safety % = % total sales can fall before losses are incurred (Total Sales – Break-Even Sales) / Total Sales

Baruch Lev and Feng Gu authors of “The End of Accounting and The Path Forward for Investors and Managers” indicate that over the past 110 years, the structure and content of financial reports has not changed, and that the role that these reports play in influencing the decisions of investors has greatly diminished. Lev and Gu make a case that non-transaction events that are not captured by the financial reports such as those disclosed through 8-k filings with the Securities and Exchange Commission (“SEC”) have a greater impact on stock prices, and thus more useful to investors. In addition, they suggest that one of reasons for the decline in usefulness of financial reports stems from the increase of estimates that has made its way into these reports (Lev and Gu 2016).

It can fairly be said that an Investor considering an investment decision (whether to purchase, sell or hold stock) in publicly traded company acts on the basis of extensive information which is available by corporation to him until the last moment of his investing decision and try to determine the fair price of corporate stock. In the light of continuous creation of a particular impression of corporate affairs by the corporation, new information by corporate can vanish the importance of previous available information to investor. In the scenario only one kind of investors can get advantage over others, who is either very close to corporate operation (corporate officers) or can access nonpublic price-sensitive information to corporation

1. A major advantage of the partnership form is that the personal assets of the partners are protected from creditors in case of legal action- False

The primary objectives of accounting is to keep track of transactions and recording revenue and expenses are important business processes often assigned to an accounting department or a financial manager. Accounting is a business discipline that allows companies to record analyze and retrieve critical financial information that can be used to determine a company's financial status and provide reports and insights needed to make sound financial decisions.

He also investigated determinates of insider trades’ abnormal return. And he also found that (1) the abnormal return of firm officers’ trade (both buy and sale) was higher than shareholders’ trade; hence he concluded that an insider who is more close to the firm’s operation activity has greater information content in his trades than other group of insiders (2) there is negative relationship between the firm size and the abnormal return; hence, he concluded that large firms have more exposure of regulatory scrutiny and analysts than small firms. Therefore, large firms’ stock is efficiently priced than small firms’ stock. Finally, he found that the abnormal returns around the reporting days are also statistically significant for both buy and sale trades.

“There is no business like show business, but there are several business like accounting.” – David Letterman (AZ Quotes) Accounting is the systematic and comprehensive recording of a financial transaction pertaining to a business. It also refers to the process of summarizing, analyzing and reporting these transactions to oversight agencies and tax collection entities. Accounting is one of the main key function for any business. This paper talks about the history of accounting, the pros and cons of accounting, how to prepare for accounting field.

This essay aims to further identify and expatiate my knowledge on capital market research which investigates how disclosures of particular information influences aggregate trading activities taken by individuals participating within capital markets (Deegan ,2011). Through this module my understanding in capital market research that looks at the information content of accounting disclosures and capital market research that uses share price data as a benchmark for evaluating accounting disclosures has evolved. In this area of research, markets are deemed efficient and this theory will be explored further. The capital market is considered to be highly competitive, and as a result, newly released public information is expected to be quickly impounded into share prices.

The four largest Australian Banks have faced considerable pressure from the community and the government in recent times. This pressure has arisen due to their interest rate increases in association with their high reported earnings. As accountants, we are responsible for preparing financial statements and “calculating” the profit figures.

Shareholders confidence is a crucial factor for any company. Since shareholders invest most of their savings in the stocks, they tend to get worried if the markets are not working according to their calculations.

Publication of operations results as required by the SEC is a process that must involve the reconciliation of company’s financial records. Most business corporations update their financial statements and publish financial reports at the end of the financial year. Cost minimization is one way of maximizing profits. Publicizing the operating results on a quarterly basis is very costly to the firms, and it reduces the long-term profitability of the corporations due to high annual operating costs. The publication of corporations’ operating results on a quarterly basis guarantees the investors high security of their investments. As such, they tend to have more confidence in the ability of the companies to meet their financial obligations. The two competing objectives need high management skills to be harmonized. Though the investors’ security guarantee is essential, the Security and Exchange Commission should consider changing regulations of public corporations and require them to publicize their operating results annually since this will ensure high long-term profitability.

By: Charn Gek Cheng, Chiang Soo Ling, Kummar Sokali Muthu Mogan, Lee Siew Fen Samantha

There have been many studies done on earnings per share and its effect on market share price, and they found that earnings per share are what determine the market price. The first study conducted by Faris Nasif AL- Shubiri shows that changes in stock price can be affected by macro and micro economic factors. Simple and multiple regression were used and he found that “there is a highly positive significant relationship between market price of stock and net asset value per share” (Hemadivya & Rama Devi). The second study by Dr. Sanjeet Sharma analyzed earnings per share and market price, and he found that “earning per share is a strong determinant of market price” (Hemadivya & Rama Devi). The third study by Malakar and Gupta analyzed the share prices of eight similar companies and took inconsiderate of dividend per share, earnings per share, retained earnings, and sales proceeds of each company, and found that “earnings per share is [a] significant determinant of share price” (Hemadivya & Rama Devi). The fourth study by Tuli, Nishi, and Mittal gathered 105 earnings ratios from 105 companies and used them in a cross sectional analysis. From the cross sectional analysis, they found that “earnings per share were significant in determining the share price” (Hemadivya & Rama Devi). In the fifth study by Malhotra, a study was done on four different industries, and the result showed that “earnings per share had positive and significant influence on market price of equity shares.