An Investigation of the Quality of Earnings Concept as Applied to Defense Contractors
NAVAL POSTGRADUATE SCHOOL MONTEREY CA
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This thesis analyzes whether the quality of earnings concept can be usefully employed in the security analysis of defense contractors. Background is provided by an extensive review of the literature relevant to quality of earnings. Since the quality of earnings concept is very subjective, specific quantitative measures of quality of earnings are developed and used in a statistical analysis to validate the variables as explanatory predictors of a firms price earnings PE ratio. The statistical techniques employed include Pearsons Product Moment Correlation, Spearmans Rank Order Correlation, stepwise regression and other multiple linear regression models. Results of the study suggest that there are significant relationships between several hypothesized quality of earnings variables and a firms PE ratio. Quality of earnings Defense contractors.
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