IMPLICATIONS OF ACCRUAL AND GROWTH ANOMALIES FOR FUTURE PROFITABILITY – A CASE STUDY OF KARACHI STOCK EXCHANGE

Prior studies have documented that accruals of companies are less persistent than cash flow as both are components of company profitability and their differing implication for future profitability of the companies are not properly comprehended by the investors when they make their investment decisions. Accruals are component of both profitability and growth in net operating assets of the company. We can segregate growth in net operating assets into accruals and growth in long term net operating assets just like segregation profitabilityinto accruals and cash flow from operations. In order to check the impact of accruals and growth in long term net operating assets on one year ahead profitability, regression has been applied on the variables. Our results revealed that after controlling current profitability, both components of growth in net operating assets i.e., accruals and growth in long term net operating assets have negative impact on one year ahead future profitability.