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Michelle dayman
Asset Equity Price/ Return ROE ROS Asset Equity Price/ Return ROE ROS
Growth Growth Book on Total Growth Growth Book on Total
Capital Capital
I Good I Good
D Poor • Poor
good companies' growth rates and profitability • 29 (72.5%) had lower average returns
ratios dropped, as did the average price-to-book on total capital;
ratio. The poor companies' six ratios increased, on • 30 (75%) had lower average returns on
average. equity; and
When each group is examined at the individ- • 28 (70%) had lower average returns on
ual company level, reversion to the mean becomes sales.
very apparent. Among the good companies, Among the poor companies,
• 32 (i.e., 80%) experienced declines in • 22 (55%) experienced increases in asset
asset growth rates; growth rates;
• 39 (97.5%) had declines in equity • 25 (62.5%) had increases in equity
growth rates; growth rate;
• 26 (65%) showed a drop in price-to- • 36 (90%) showed a rise in price-to-book
book ratios; ratios;
Rgure C. Comparison of Good Companies' Key Rgure D. Comparison of Poor Companies' Key
Variables between Periods Variables between Periods
4.0 -
2.0
[ 1
0.0
-2.0
-4.0
- 1w I •
Asset Equity Price/ Return ROE ROS Asset Equity Price/ Retum ROE ROS
Growth Growth Book on Total Growth Growth Book tm Total
Capital Capital
• 1981-86 • 1981-86
• 1987-92 • 1987-92
Good mm l.lS
1.04
0.38
-0.07
17.2
16.5
Poor D:71