Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments April 2, 2023 erstellt
Description:
We develop a method for estimating the private value of knowing the future realization of some financial statistic and then apply the measure to the familiar ratios arising from the Dupont decomposition of return on equity. The estimation is grounded in the standard rational expectations model, adapted to accommodate relative risk aversion, and produces an investor’s willingness to pay for the signal denominated in units of the riskless asset (e.g. money). The method can accommodate different levels of investable wealth, multiple assets, and any information system regarding those assets. We use this estimation method to document a number of interesting contrasts. An investor with $1M in wealth would be willing to pay $2515 to know next year’s return on equity; an investor with $100M in wealth would be willing to pay $188,680 for the same statistic. We also show that knowing next year’s return on equity, given that the investor already knows the current value, is worth six times more than knowing the value of next year’s sales growth. And, as predicted by the Dupont model, we find the value of knowing next year’s operating asset turnover depends crucially on the level of the operating profit margin. Finally, we show that knowing next year’s leverage is practically worthless. Given that investors face tradeoffs when deciding where to expend effort in financial statement analysis, these estimates help to guide them to the most valuable signals