DOI: 10.5176/2010-4804_2.2.177
Authors: Ahmed F. Elbayoumi and Emad A. Awadallah
Abstract:
The objective of this paper is to investigate which measure of accounting income (comprehensive income, operating income, or net income) is more useful to equity investors in explaining future earnings, future cash flows, and stock returns. This study proposes that different measures of income are more useful for different uses. The research is undertaken within the Egyptian environment that allows considerable asset revaluations and holds the reporting of extraordinary items. Therefore, such environment provides a rich ground for testing the expected effects of reporting comprehensive income and its components on the Egyptian investors. The results do not support the superiority of comprehensive income measures in explaining the following period’s net income compared to net income. None of the four tested measures of earnings is able to explain the following period’s cash flows. Operating income is superior to the other three measures of income in explaining stock return.
Keywords: Net Income, Comprehensive Income, Operating Income, Statement of Financial Accounting Standards No. 130, Egyptian Accounting Standards
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