Relationship between accrued earnings, assets growth and future profitability of the companies listed on Nairobi stock exchange

Abstract

Prior researchers in developed markets have found that, change in accruals is a strong signal of company's future profitability and stock prices. This study aims at determining whether there is any relationship between current accrued earnings, growth in long-term net operating assets and future profitability for the companies listed on NSE. The period of the study is from 1999 to 2004, the year 1999 is a base year. Out of 49 companies listed on the NSE during this period only 35 companies qualified for this study. Financial reports for companies used in this study were obtained from NSE handbook and Capital Markets Authority (CMA) library. The multiple regression analysis was performed on the collected data with aid of statistical package (SPSS), to establish relationship between current accrued eamings, growtn 'in Long-term operating assets and future profitability, for the companies listed on NSE. After performing statistical tests on the sample of the study, we find that there is no relationship between accrued earnings, growth in long-term net operating assets and one year- ahead return on assets for the companies listed on NSE.