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 ?
The ratings also consider the company's recent higher earnings variability from one-time charges, the ongoing impact of the low interest rate environment, and potential financial market volatility.
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.
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.
The panel regression OLS and Fixed Effect models include return on assets, earnings variability, net total assets, firm age and firm growth rate as control variables.
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.
They have theoretically and empirically identified agency costs, information asymmetry, taxes, non-debt tax shields, growth, firm size, assets' collateral value and tangibility, profitability and liquidity, earnings variability, expected costs of financial distress, industry classification, country factor, and firm's international activities as the determinants of firm's debt-equity choices.
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.
Earnings variability is minimum standard error of earnings for past eight years, fitted to an exponential curve.
Vigeland, 1988, "Analysts Forecasts, Earnings Variability, and Option Pricing--Empirical-Evidence", Accounting Review, 63:563-585
Although an alternative explanation for the results in Table 4, the differences reported in Table 2 suggest that firms likely consider earnings variability in the decision whether to qualify their compensation plan.