Analysis of Retailer Inventory and Financial Performance

This paper attempts to recreate the regression model originally presented in Kesavan and Mani (2013) to analyze the relationship between abnormal inventory growth (AIG) and one-year-ahead earnings per share (EPS) for U.S. public retailers. In addition, this paper aims to build upon Kesavan and Mani (2013)’s findings by applying the model to recent data in order to test whether results vary as a function of different macroeconomic conditions. Unlike Kesavan and Mani (2013), I do not find a statistically significant relationship between AIG and future EPS for the years 2004-2009. However, when applying the same model to data from 2013 to 2018, I find a significant, inverted-U relationship between the two variables. These findings suggest that abnormal inventory growth is impacted by macroeconomic factors that encourage retailers to accumulate excess inventory. Furthermore, I find that excess inventories have a larger negative impact on future earnings than insufficient inventories, implying that retailers should prioritize strategies that prevent bloated inventory levels above those that lead to decreased service level

The Relationship Between Abnormal Inventory Growth and Future Earnings for U.S. Public Retailers

In this paper we examine the relationship between inventory levels and one-year ahead earnings of retailers using publicly available financial data. We use benchmarking metrics obtained from operations management literature to demonstrate an inverted-U relationship between abnormal inventory growth and one-year ahead earnings per share for retailers. We also find that equity analysts do not fully incorporate the information contained in abnormal inventory growth of retailers in their earnings forecasts resulting in systematic biases. Finally, we show that an investment strategy based on abnormal inventory growth yields abnormal returns of 11.8% (p<0.001)

Empirical study of link between operations and financial performance for retailers

Retailers continually try to improve their store operations in order to achieve better financial performance. However, there appears to be limited empirical research that shows the influence of operations management on financial performance. We conduct an empirical study of the link between operations management and financial performance of retailers by investigating at drivers of store level operations in a single retail chain, and studying the relative firm level performance of US public retailers. We utilize data from two sources; individual proprietary store level traffic data and publicly available financial data for this study. In addition, we complement our datasets by extracting information on demographics from publicly available databases. In the first chapter, we use detailed traffic data to study whether there is understaffing at a heterogeneous group in retail stores belonging to the same retail chain. We then look at some of the underlying causes for this understaffing, including traffic forecast errors and scheduling constraints, and quantify their impact on store profits. In the second chapter, we characterize the underlying distribution of hourly traffic data that is obtained with help of traffic counters at each of the retail stores and study the impact that competition and location demographics have on the observed variability in traffic. We then explore the managerial implications of having detailed traffic information on labor planning by deriving better forecasts of traffic that would aid staffing decisions. Finally, in the third chapter, we conduct a firm level analysis of US public retailers with help of benchmarking metrics developed from operations management. We demonstrate an inverted-U relationship between abnormal inventory growth and one-year ahead earnings. We also show that equity analysts are systematically biased in their earnings forecasts as they fail to incorporate information contained in abnormal inventory growth and further, an investment strategy based on abnormal inventory growth can yield significant abnormal returns

Fundamental Signals, Future Earnings, and Abnormal Returns

In this paper, I investigate how fundamental signals derived from the financial statements predict changes in future EPS and abnormal stock returns in the short and long term. My approach uses methodology consistent with Abarbanell & Bushee [1997 & 1998], updated with more recent data

Report of the Attorney General’s Task Force On Motor Fuel Pricing in Nebraska

In the wake of the devastation of Hurricanes Katrina and Rita, Nebraskans experienced a dramatic increase in the price of motor fuels. Although Nebraska was not impacted directly by the physical effects of these storms, damage to critical production, refining, and transportation facilities in the Gulf Coast region sent shock waves throughout the country. Attorney General Jon Bruning convened this task force for the purpose of studying these price movements and to analyze whether price-gouging activity may be occurring. Motor vehicle fuels are a vital commodity. Businesses and consumers depend on a network of oil producers, refiners, and retailers and an extensive transportation system to provide these fuels for daily use. This network extends far beyond Nebraska borders and links oil producers, refiners, retailers, and consumers across the entire globe. Careful scrutiny of the pricing and delivery of petroleum products is not a singular phenomenon limited to Nebraska. On a federal level, the Federal Trade Commission (FTC) regularly examines the petroleum industry to address concerns about concentration in production and refining and issues affecting retail pricing. Other states also have undertaken investigations, with Florida recently concluding a study addressing antitrust concerns in that state. These studies have not found violations of law, and they generally have found competitive markets affected by worldwide conditions. Growing global demand has led to increasing dependence on imported crude oil products, and disruptions in supplies–whether from political or natural causes–quickly are assimilated into market prices on a worldwide scale. This study is unique in focusing on Nebraska markets. No refineries currently operate in Nebraska. Motor fuels for sale in retail establishments in Nebraska come primarily through pipelines, which depend heavily on refinery operations in the Gulf Coast region for supplies. An extensive network of retail establishments serves Nebraska consumers and businesses, but these retailers generally can be characterized as price takers dependent upon other suppliers for their inventory. After laying a foundation for understanding national price trends, this study analyzes price data from a sample of establishments throughout different geographic regions of the state. This analysis focuses on price and gross margin behavior during a period of approximately one year, including the months immediately preceding and following Hurricanes Katrina and Rita. This study begins with a discussion of legal questions that are basic to defining price gouging. After analyzing the general principles for price determination in a market economy, Part 1 outlines legal constraints from both federal and state law that affect price-setting functions. It compares statutes from other states with Nebraska law and examines the concept of unconscionability in proscribing certain commercial behavior. It concludes that retail price behavior in Nebraska is unlikely to meet a standard of unconscionability under the current Nebraska statute. Part 2 examines U.S. Energy Information Agency data to determine factors contributing to volatility in oil and refined gasoline prices. Additionally, we investigate the profitability of twenty-one major independent oil companies during the period before and after the hurricanes struck. Part 3 examines gasoline and diesel price fluctuations in individual Nebraska cities both before and after Hurricanes Katrina and Rita struck the Gulf Coast region. We examine how prices in Nebraska react to the natural disasters in the Gulf Coast. We also examine whether any particular brands (or stations) commonly led price increases and declines in Nebraska cities

The Future of Retail Operations

Retailing consists of all the activities associated with the selling of goods to the final consumer. In this article, we review the research on retail operations published in Manufacturing &amp; Service Operations Research (M&amp;SOM) since 1999. We then discuss the current retail landscape and the new research directions it offers, in which M&amp;SOM can play a prominent role

Accounting fundamentals and volatility in the Euronext 100 index

To determine whether accounting fundamentals can provide relevant information to clarify firm value, this study examines the value relevance of accounting fundamentals in the Euronext 100 index—specifically, whether applying an accounting fundamental strategy to select stocks yields significant, positive excess market buy-and-hold returns after one and two years of portfolio formation. By integrating valuation theory and accounting research, this study introduces a set of accounting fundamental signals (F-score and L-score) that reflect information that can influence security prices, but not necessarily in a timely manner. Annual financial and market data from Euronext 100 index stocks between 2000 and 2014 reveal, after controlling for earnings, book-to-market ratio, and firm size, that the fundamental strategy provides value-relevant information to investors. The relationship between the accounting fundamental signals (i.e., F-score and L-score) and buy-and-hold market future (one- and two-year) returns is significant and positive. That is, portfolios formed on the basis of high scores on the signals achieve a 13% average market excess annual return between 2000 and 2014. In addition to addressing the practical problem of mispriced stocks, this study contributes to scarce accounting research in European capital markets by detailing the “post-earnings” drift phenomenon in a Euronext 100 index. Because under the period of analysis the Euronext 100 index showed strong volatility, further this study also explored asymmetric effects which are fundamental to stock market volatility. Considering their relevance, this study therefore examines the conditional volatility of returns to the Euronext 100, with a particular focus on the asymmetric properties of this market. The analysis entails an estimate of the symmetric GARCH and asymmetric EGARCH and T-GARCH models, using a data set of daily closing prices from the index that spans from December 3, 2000, to December 18, 2015. The findings show that conditional variance is an asymmetric function of past residuals, offering strong evidence of asymmetries in the returns of the Euronext 100.Para avaliar se a informação financeira (accounting fundamentals – rácios financeiros) permite determinar o valor da empresa, este estudo analisa a relevância dos rácios financeiros no índice Euronext 100. Especificamente, esta investigação examina se utilizando rácios financeiros é possível a seleção de ações para formar carteiras que gerem rendibilidades positivas segundo uma estratégia buy-and hold a um e a dois anos. Assim, integrando a teoria do valor (valuation theory) e análise fundamental, este estudo introduz um conjunto de rácios (F-score e L-score) que refletem informação que pode influenciar os preços, mas não necessariamente de forma imediata (lack of timeliess). Utilizando informação contabilística e informação de mercado das empresas cotadas no índice Euronext 100 para o período 2000-2014, os resultados mostraram que após se controlar o efeito do rácio dos resultados por ação (EPS), o rácio do valor contabilístico sobre o valor de mercado da empresa (BMR) e a dimensão da empresa (logaritmo do total do ativo), o coeficiente do F-score mostra que um incremento de uma unidade deste score está associado a um aumento das rendibilidades de 2.9% a 3.1%. O efeito do L-score é mais modesto, cerca de 1.8%. Adicionalmente as carteiras constituídas com os rácios que reportam valores mais elevados i.e.. high scores para o F-score, segundo uma estratégia buy-and-hold a um ano apresentam uma rendibilidade média de 13% quando comparada a rendibilidade do índice no período em análise. Atendendo ao fenómeno do “mispricing” das ações, este trabalho contribuí para a escassez de literatura no Mercado Europeu, dando enfoque ao “post-earnings drift phenomenon”. Dado que durante o período em análise se verificou uma forte volatilidade no índice Euronext 100, que coincidiu com a crise financeira de 2008/2009 e com a crise da dívida soberana europeia, e de forma a documentar a reação atípica do mercado durante este período, o presente trabalho tem também como objetivo fornecer um contributo para a análise do comportamento da volatilidade dos mercados financeiros, a qual assume especial relevo em resultado da complexidade e incerteza que atualmente caracteriza os mercados à escala global. Mais concretamente, o que se compara nesta tese são os resultados da abordagem tradicional assente no desvio-padrão e em modelos econométricos como o GARCH, EGARCH e T-GARCH. Para tal, recorre-se a uma amostra constituída pelas rendibilidades do índice bolsista Euronext 100 no período compreendido entre 3 de Dezembro de 2000 e 18 de Dezembro de 2015. Os resultados mostram que a variância condicional é uma função assimétrica de resíduos do passado, havendo uma forte evidência de assimetrias nas rendibilidades do Euronext 100

An Analysis Of The Comparative Predictive Abilities Of Operating Cash Flows, Earnings, And Sales

Prior studies (e.g., Greenburg et al., 1986; Murdoch and Krause, 1989) provide evidence that earnings outperforms historical cash flows in predicting future cash flows. Later research (e.g., Barth et al., 2001) demonstrates that the major accrual components of earnings each possess significant explanatory power in predicting future cash flows and that they augment, rather than replace, the predictive ability of aggregate earnings.&nbsp; The current study furthers this work by examining the predictive power of another major component of earnings, i.e., sales.&nbsp; Using share price as the dependent variable and as a proxy for future cash flows, this study compares the predictive abilities of changes in operating cash flows, earnings, and sales.&nbsp; Similar to the findings in prior research, earnings predicts better than operating cash flows.&nbsp; More importantly, however, sales predicts with greater accuracy than either operating cash flows or earnings

The Need of Changes in Traditional Accounting Systems Necessitated by Modern Intellectual Capital Conception

While economists, business people and policy analysts continue to debate the question of what is "new" about the so-called "New Economy", globalization, urgency of innovation and intensive use of Information technology, one important feature of modern Corporation in the early twenty-first century seems clear: intangible factors are playing an increasingly dominant role in business wealth creation. The drivers of tomorrow's wealth are brands, networks, knowledge, innovation, relationships, competencies, corporate culture and leadership, and these are the new critical assets - the weightless keys to business future wealth. But despite the growing awareness of the importance of intangible assets, they remain almost universally ignored in traditional accounting and reporting procedures. The authors in this article analyze the main problems concerning difficulties to reflect intangibles in traditional accounting statements and project the tendencies of reporting intangible-related information in future accountability.Podczas gdy ekonomiści, przedsiębiorcy i politolodzy dyskutują nad tym, co jest "nowego" w tzw. Nowej Ekonomii oraz nad zagadnieniami związanymi z globalizacją i potrzebą innowacji oraz szerokiego korzystania z technologii informatycznej, jedna kwestia nie ulega wątpliwości, jeśli chodzi o zmiany w przedsiębiorstwie XXI w.: czynniki niematerialne odgrywają coraz większą rolę w tworzeniu wartości. Czynniki kluczowe w kreowaniu przyszłego bogactwa to znaki firmowe, systemy połączeń i kooperacji, wiedza, innowacje, relacje, wartości, kultura organizacyjna i przywództwo. Ale chociaż świadomość znaczenia aktywów niematerialnych i prawnych jest coraz większa, tradycyjna rachunkowość i sprawozdawczość niemal całkowicie je ignoruje. Autorzy tego artykułu analizują najważniejsze problemy, wynikające z trudności odzwierciedlenia aktywów niematerialnych w tradycyjnych sprawozdaniach finansowych oraz ukazują kierunki przyszłego rozwoju rachunkowości w tym zakresie.Nepaisant augančio nematerialaus turto svarbos suvokimo, daugelyje šalių jis iślieka ignoruojamas tradicineje atskaitomybeje ir ataskaitų procedūrose. Praktiškai visos nematerialios investicijos finansinese ataskaitose yra fiksuojamos kaip iślaidos, bet ne kapitahzuojamos (traktuojamos kaip turtas), ir nuamortizuojamos prognozuojamame naudos laikotarpyje. Materialaus-nematerialaus turto asimetnja stingant informacijos apie investicijas į nematerialų turtą daro socialinę ir ekonominę żalą. Sio straipsnio autoriai analizuoja pagrindines nematerialaus turto atspindejimo tradicinese finansinese ataskaitose sunkumų problemas, pasiūlydami jų sprendimo būdus ir prognozuodami informacijos apie nematerialų turtą fiksavimo ateitį atskaitomybėse.Zadanie pt. Digitalizacja i udostępnienie w Cyfrowym Repozytorium Uniwersytetu Łódzkiego kolekcji czasopism naukowych wydawanych przez Uniwersytet Łódzki nr 885/P-DUN/2014 zostało dofinansowane ze środków MNiSW w ramach działalności upowszechniającej naukę