earnings variability

Earnings Variability

1. Differences in a publicly traded company's year-on-year earnings or earnings per share in both positive and negative directions. Earnings variability is sometimes considered a negative sign as investors do not know whether the company's earnings in one year can be sustained in the next. This can lead to a low P/E ratio as high earnings in a given year do not equate to an increase in share price. It is the opposite of earnings momentum.

2. The amount a worker's wages or salary change from year to year. Earnings variability can occur due to a job change, among other reasons. Between 2003 and 2007, approximately one in five workers saw their earnings increase by 25% or more and one in five saw them decrease by the same amount.

earnings variability

Fluctuations in a corporation's net income or earnings per share during a given period. Past earnings variability is generally considered undesirable because it makes investors less certain of future earnings per share and dividends. As such, a history of earnings variability may be expected to penalize a firm's stock with a lower-than-average price-earnings ratio.
References in periodicals archive ?
Other control variables include size, growth, profitability, tangibility, age, earnings variability, debt service capacity, dividend payout ratio, non-debt tax shields, degree of operating leverage, price-earnings ratio, promoter shareholdings, tax rate and uniqueness.
However in addition to balance sheet strength, the stocks included are allocated across ten sectors of the S&P 500 and are quantitatively scored and screened for various other factors, including: stable sales growth, low downside earnings variability, strong return on equity and low stock price drawdown risk.
VAR = 5 years earnings variability prior to the debt contract; computed as the standard deviation of firm i's net income before extraordinary items (scaled by total assets) measured over rolling five year windows.
This comprehensive data set throws up some very interesting findings, including lower earnings variability by those with higher lifetime earnings, and that married individuals enjoy retirement wealth that is less sensitive to earnings variability than those who are not married.
Herrmann and Inoue (1996) showed that under certain operating conditions, firm size, income taxes, capital intensity, deviation in operating activities, and earnings variability are all related to motivations of managers to manage earnings using depreciation changes in the Japanese context.
They find that "since 1980, the trend in year-to-year earnings variability has been roughly flat.
Most companies would find it very costly to take actions that greatly reduce earnings variability, but with upgrades in incentive pay design, it can be done at negative cost, since business results can improve as a result of having more effective incentives.
In principle, high earnings variability will increase the likelihood of default on debt service obligations and should lead to a diminished willingness and ability to have a highly levered capital structure when there are positive costs to financial distress.
Best believes the group has taken appropriate actions to reduce its catastrophe exposures to more prudent levels, catastrophe losses will likely continue to be a source of earnings variability in the future.
Mark-to-market accounting recognition is the main driver of earnings variability for the segment.
Also, the second period has much greater earnings variability and dividend payout; the accounting betas for both periods are much larger with somewhat larger cross-sectional standard deviations than the BKS sample.
In Fitch's view, the earnings decline is not a near-term ratings concern considering BCBSF's excellent capital position and history of earnings variability from year to year.