<URL:http://www.uwasa.fi/~ts/smuc/smuc.html>
Timo Salmi and Ilkka Virtanen
Measuring the Long-Run Profitability of the Firm;
A Simulation Evaluation of the Financial Statement Based IRR
Estimation Methods
CONTENTS
Abstract
1.
Introduction
- 1.1 Background
- 1.2 Overview of Research Problem and Methodology
- 1.3 Problem Statement
2.
Simulation Evaluation Approach
- 2.1 Generation of the Capital Investment Time Series
- 2.2 Cash Inflows Produced by the Capital Investments
- 2.3 Contribution Distribution
- 2.4 Depreciation Methods
- 2.5 Accountant's vs. Economist's Profits and Annuity Depreciation
3.
Review of Four Profitability Estimation Methods
- 3.1 Kay's Method
- 3.1.1 Presentation of the Method
- 3.1.2 Discussion of the Method
- 3.2 Ijiri-Salamon Method
- 3.3 Ruuhela's Method
- 3.4 Discussion of the Model-Oriented IRR Estimation Methods
- 3.5 Averaged Accountant's Rate of Return Method
- 3.6 Discussion of Market-Based Methods
4. Evaluation of the Estimation Methods
- 4.1
Simulation Design and Data Description
- 4.2
Evaluation of Kay's Method
- 4.2.1 Effect of Regular Business Cycles
- 4.2.2 Overall Accuracy of the Kay's IRR estimates
- 4.2.3 Effect of Noise
- 4.2.4 Effect of Contribution Patterns, Growth-Profitability
Relationship and Firm's Depreciation Choice
- 4.2.5 Effect of Major Capital Investment Shocks
- 4.2.6 Theoretical Considerations
- 4.2.7 Conclusions about Kay's Method
- 4.3
Evaluation of Ijiri-Salamon Method
- 4.3.1 Exposition of the IRR Estimates with Ijiri-Salamon
- 4.3.2 Effect of Various Factors on Ijiri-Salamon IRR Estimates
- 4.3.3 Decomposition of the Ijiri-Salamon Method Estimation Error
- 4.3.4 Conclusions about Ijiri-Salamon Method
- 4.4
Evaluation of Ruuhela's Method
- 4.4.1 Effect of Regular Business Cycles
- 4.4.2 Effect of Noise
- 4.4.3 Effect of Contribution Patterns and Growth-Profitability
Relationship and Other Factors
- 4.4.4 Effect of Major Capital Investment Shocks
- 4.4.5 Analysis of the Estimation Error in Ruuhela's Method
- 4.4.6 Conclusions about Ruuhela's Method
- 4.5
Averaged Accountant's Rate of Return Method
- 4.5.1 Closeness of the Average ARR Method to Kay's Method
- 4.5.2 Theoretical Considerations and Conclusion
- 4.6
Comparison of the Results
5.
Summary and Conclusions
References
Appendix 1.
List of Symbols
Appendix 2.
Annuity Depreciation under Anton Contribution
Distribution
The Computer Source Codes
Please use the following reference to this publication: Salmi,
Timo and Ilkka Virtanen (1997). Measuring the Long-Run Profitability
of the Firm; A Simulation Evaluation of the Financial Statement
Based IRR Estimation Methods.
Acta Wasaensia, No. 54, University of Vaasa, Finland. Also
available from World Wide Web:
<URL:http://www.uwasa.fi/~ts/smuc/smuc.html>.
ISBN 951-683-689-5
You can download the entire book at one go as a
zipped
file from Garbo archives at the University of Vaasa, Finland.
The next section (Abstract)
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