Open AccessEvaluating Models Of The Relationship Between Accounting Profitability Measures And Internal Rate Of Return
Author(s) -
Steven R. Fritsche,
Michael T. Dugan
Publication year - 2011
Publication title -
journal of applied business research
Language(s) - English
Resource type - Journals
eISSN - 2157-8834
pISSN - 0892-7626
DOI - 10.19030/jabr.v25i2.1033
Subject(s) - profitability index , economics , econometrics , rate of return , accounting , mathematics , statistics , finance
Researchers have investigated the relationship between the internal rate of return (IRR) and accounting-based profitability measures using analytical and indirect empirical methodologies. The current study employs computer simulation to complement the other two methodologies and corroborate their results. The results indicate that the accounting rate of return (ARR) and the conditional estimate of internal rate of return (CIRR) are strongly associated with IRR; however, the length of the estimation period and formulation used for CIRR appear to affect its relationship to IRR. ARR’s relationship to IRR appears to be unaffected by the length of the estimation period.