Accrual accounting and valuation: pricing book values
Λογιστική σε δεδουλευμένη βάση και αποτίμηση
KeywordsAccruals ; Valuation ; Ohlson Model ; Accrual accounting ; Accrual anomaly ; Residual income
This thesis deals with the value added by accrual accounting in the presentation of the actual financial situation of a company and the usefulness of the residual income model in forecasting share prices. The concept of accrual accounting is described together with its importance in presenting a complete figure of the financial situation of a company; not only the cash transactions that may result in overestimation and underestimation of revenue and expenses. The residual income valuation model together with its advantages and disadvantages are described. The model is used to valuate a sample of twenty companies, which thereafter are invested in portfolios depending on whether they are undervalued or overvalued. The results show that a positive return is generated from the undervalued shares and a negative from overvalued shares, showing that the residual income has a weak predicting power regarding overvalued shares, so the residual income model is not very useful in predicting share prices.