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s on earnings alone; theoretically, he modeled the role of earnings, book value and dividends in the valuation of a firm’s equity. An important combined function to the statement of changes in owner’s equity is allocated by accounting method. The statement includes the bottom-line items in the balance sheet and income statement, book value and earnings, and its format needs the change in book value to equal earnings minus dividends.

This relation is referred as the clean surplus relationship because all changes in assets and liabilities which are unrelated to dividends must pass though the income statement. Generally, this scheme is accepted by accounting theory without connecting it to a user’s perspective on accounting data. While the underlying idea that net stocks of value settle with the creation and distribution of value produces a basic question in an equity valuation context: whether one can create a cohesive theory of a firm’s value that depends on the clean surplus relation to identify a distinct role for each of the three variables: earnings, book value and dividends. Ohlson (1995) resolves the question in a neoclassical framework.

In this case, the analysis starts from the assumption that value is equal to the present value of expected dividends (Rubinstein, 1976). Then one can assume the clean surplus relation to replace dividends with earnings and book values in the formula of present value. At the same time, a multiple-date, uncertain model such that earnings and book value act as complementary value indicators is led to by assumption on the stochastic behavior of the accounting data, In a specific way, the main point of the valuation function expresses value as a weighted average of (i) capitalized earnings at present (adjusted for dividends) and (ii) book value at present. Extreme parameterizations of the model produce either capitalized earnings or book value at presents the only value indicators.

Ohlson (1991) have examined both of the settings. At its most primary level, he accordingly generalizes prior analysis to derive a convex combination of a pure flow model of value and a pure stock model of value. The combination is an interesting conception because both the bottom-line items are brought into valuation through the clean additional relation. The development of model, in which Ohlson (1995) produces the value of a firm as linear additive functions of both earnings and book value, shows the relevance of abnormal or residual earnings as a variable that drives a company’s value.

Earnings minus a charge for the use of capital define this accounting-based performance measure as measured by book value that is in the beginning of period multiplied by the cost of capital. Abnormal or residual earnings hold on the difference market and book values, that is to say, they bear the goodwill of a company. As a matter of fact, a particular parsimonious expression for goodwill is derived from a straight forward two step procedure as it relates to abnormal or residual earnings.

Firstly, following Peasnell (1981) and others, the clean surplus relation indicates that goodwill is equal to the present value of future expected abnormal or residual earnings. Secondly, if one further assumes that 本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。