Econometrics - Literature review Example

gh ROA are sure that the same success will transform into a better market price for its stock as fundamental profitability exploration is a true indication of a firm’s performance. Similarly, it has been comparatively challenging to identify the exact value of a firm since stocks are subjected to speculative swings. Noteworthy, there has been an increased prominence and concentration on the dingy outlook for social security and personal retirement plans, factors that make it exceedingly important for people to comprehend the factors that drive a company’s profitability to enable them make sound investment decisions.

Apparently, considering the dynamism that is prominent in the corporate world, it becomes imperative that even managers and investors gain a candid understanding of how the various activities that a firm engages in affects its profitability and how that affect its dividends pay-out, performance in the industry and how its projection on sales and other long-term assets and liabilities is affected. This study will investigate the effects of factors such as the sector the firm is classified in, capital expenditures, debt-to-equity ratios, sales and R&D (research and development) expenditures on a firm’s ROA.

To gauge the importance of these factors, I will conduct a multivariate regression analysis of the presented data. However, prior and the analysis and setting up of a model that describes the effects of the factors, a comprehensive literature review regarding the aforementioned factors is inevitable. McLaney & Peter evaluate the dependability, uses and elements of market-value and accounting measures of profitability. Apparently, they find that variations between market-value and accounting measures of profitability connote the cogency of cautionary remarks regarding the use of accounting data (McLaney & Peter 122).

Additionally, there exists an important explanatory role for industry growth, leverage, TV advertising and R&D intensity as