Asked Sep 18, 2019

Managers often complain that the stock market is short-sighted and focused on accounting earnings. In your post, make a case to convince your manager that this view is either true or not true.


Expert Answer

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Step 1

Stock market is short-sighted and focused on accounting earnings.- This is definitely not the correct statement to say.

Stock Markets serves a huge pool of information if interpreted correctly.

Step 2

Stock market is not only based on earnings rather also on several other factors including current events, regulatory decisions and investors perception as well. It is very difficult to sort the results analysed by stock market into any particular factor.

There is no denying in the fact that earnings play an important part in analysing whether a investment is a good or bad investment. We cannot evaluate a company’s performance without seeing its earning growth over the years / or period of time. Stock market helps in analysis of its growth by comaring the past numentrs and helps in determining the progress of the company, but along with this its also measures the stability or consistency of those earnings. This helps the investors to forsee the future growth of company. There are various ratios used in analysis of company’s accounting earnings- these are Price earning ratios, Dividend payout ratios, Liquidity ratios, cash conversion ratio, return on equity etc.

Apart from the earnings, the values of shares or financial intruments are also affected by other factors & stock market also analyses their impact on the value of shares. It prepares reports, charts and graphs for the prospective changes that can happen because of these factors and awares the stockholders or prospective investors to make sensible decision. The factors that are focused on apart from earnings are ( inclusive list)-

1. Anticipated take...

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