搜索
Reviewofaccountingstudies,2003,16(8):531-560FinancialStatementAnalysisofLeverageandHowItInformsAboutProtabilityandPrice-to-BookRatiosDoronNissim,Stephen.PenmanAbstractThispaperpresentsa?nancialstatementanalysisthatdistinguishesleveragethatarisesin?nancingactivitiesfromleveragethatarisesinoperations.Theanalysisyieldstwoleveragingequations,oneforborrowingto?nanceoperationsandoneforborrowinginthecourseofoperations.Theseleveragingequationsdescribehowthetwotypesofleverageaffectbookratesofreturnonequity.Anempiricalanalysisshowsthatthe?nancialstatementanalysisexplainscross-sectionaldifferencesincurrentandfutureratesofreturnaswellasprice-to-bookratios,whicharebasedonexpectedratesofreturnonequity.Thepaperthereforeconcludesthatbalancesheetlineitemsforoperatingliabilitiesarepriceddifferentlythanthosedealingwith?nancingliabilities.Accordingly,?nancialstatementanalysisthatdistinguishesthetwotypesofliabilitiesinformsonfuturepro?tabilityandaidsintheevaluationofappropriateprice-to-bookratios.Keywords:financingleverage;operatingliabilityleverage;rateofreturnonequity;price-to-bookratioLeverageistraditionallyviewedasarisingfrom?nancingactivities:Firmsborrowtoraisecashforoperations.Thispapershowsthat,forthepurposesofanalyzingpro?tabilityandvaluing?rms,twotypesofleveragearerelevant,oneindeedarisingfrom?nancingactivitiesbutanotherfromoperatingactivities.Thepapersuppliesa?nancialstatementanalysisofthetwotypesofleveragethatexplainsdifferencesinshareholderpro?tabilityandprice-to-bookratios.Thestandardmeasureofleverageistotalliabilitiestoequity.However,whilesomeliabilities—likebankloansandbondsissued—aredueto?nancing,otherliabilities—liketradepayables,deferredrevenues,andpensionliabilities—resultfromtransactionswithsuppliers,customersandemployeesinconductingoperations.Financingliabilitiesaretypicallytradedinwell-functioningcapitalmarketswhereissuersarepricetakers.Incontrast,?rmsareabletoaddvalueinoperationsbecauseoperationsinvolvetradingininputandoutputmarketsthatarelessperfectthancapitalmarkets.So,withequityvaluationinmind,thereareapriorireasonsforviewingoperatingliabilitiesdifferentlyfromliabilitiesthatarisein?nancing.Ourresearchaskswhetheradollarofoperatingliabilitiesonthebalancesheetispriceddifferentlyfromadollarof?nancingliabilities.Asoperatingand?nancingliabilitiesarecomponentsofthebookvalueofequity,thequestionisequivalenttoaskingwhetherprice-to-bookratiosdependonthecompositionofbookvalues.Theprice-to-bookratioisdeterminedbytheexpectedrateofreturnonthebookvalueso,ifcomponentsofbookvaluecommanddifferentpricepremiums,theymustimplydifferentexpectedratesofreturnonbookvalue.Accordingly,thepaperalsoinvestigateswhetherthetwotypesofliabilitiesareassociatedwithdifferencesinfuturebookratesofreturn.Standard?nancialstatementanalysisdistinguishesshareholderpro?tabilitythatarisesfromoperationsfromthatwhicharisesfromborrowingto?nanceoperations.So,returnonassetsisdistinguishedfromreturnonequity,withthedifferenceattributedtoleverage.However,inthestandardanalysis,operatingliabilitiesarenotdistinguishedfrom?nancingliabilities.Therefore,todevelopthespeci?cationsfortheempiricalanalysis,thepaperpresentsa?nancialstatementanalysisthatidenti?estheeffectsofoperatingand?nancingliabilitiesonratesofreturnonbookvalue—andsoonprice-to-bookratios—withexplicitleveragingequationsthatexplainwhenleveragefromeachtypeofliabilityisfavorableorunfavorable.Theempiricalresultsinthepapershowthat?nancialstatementanalysisthatdistinguishesleverageinoperationsfromleveragein?nancingalsodistinguishesdifferencesincontemporaneousandfuturepro?tabilityamong?rms.Leveragefromoperatingliabilitiestypicallyleverspro?tabilitymorethan?nancingleverageandhasahigherfrequencyoffavorableeffects.Accordingly,foragiventotalleveragefrombothsources,?rmswithhigherleveragefromoperationshavehigherprice-to-bookratios,onaverage.Additionally,distinctionbetweencontractualandestimatedoperatingliabilitiesexplainsfurtherdifferencesin?rms’pro?tabilityandtheirprice-to-bookratios.Ourresultsareofconsequencetoananalystwhowishestoforecastearningsandbookratesofreturntovalue?rms.Thoseforecasts—andvaluationsderivedfromthem—depend,weshow,onthecompositionofliabilities.The?nancialstatementanalysisofthepaper,supportedbytheempiricalresults,showshowtoexploitinformationinthebalancesheetforforecastingandvaluation.Thepaperproceedsasfollows.Section1outlinesthe?nancialstatementsanalysisthatidenti?esthetwotypesofleverageandlaysoutexpressionsthattieleveragemeasurestopro?tability.Section2linksleveragetoequityvalueandprice-to-bookratios.TheempiricalanalysisisinSection3,withconclusionssummarizedinSection4.1.FinancialStatementAnalysisofLeverageThefollowing?nancialstatementanalysisseparatestheeffectsof?nancingliabilitiesandoperatingliabilitiesonthepro?tabilityofshareholders’equity.Theanalysisyieldsexplicitleveragingequationsfromwhichthespeci?cationsfortheempiricalanalysisaredeveloped.Shareholderpro?tability,returnoncommonequity,ismeasuredasReturnoncommonequity(ROCE)=comprehensivenetincome÷commonequity(1)Leverageaffectsboththenumerato