The Usefulness of Different Accounting Earnings Measures: The Case of Egypt

Abstract

The objective of this paper is to investigate which
measure of accounting income (comprehensive income,
operating income, or net income) is more useful to equity
investors in explaining future earnings, future cash flows, and
stock returns. This study proposes that different measures of
income are more useful for different uses. The research is
undertaken within the Egyptian environment that allows
considerable asset revaluations and holds the reporting of
extraordinary items. Therefore, such environment provides a
rich ground for testing the expected effects of reporting
comprehensive income and its components on the Egyptian
investors. The results do not support the superiority of
comprehensive income measures in explaining the following
period’s net income compared to net income. None of the four
tested measures of earnings is able to explain the following
period’s cash flows. Operating income is superior to the other
three measures of income in explaining stock return.