A Deep Dive Into Earnings Quality with Columbia Professor Doron Nissim
Excess Returns
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How to Decompose Return on Equity Into the Different Drivers of Profitability Analysis
In the presentation I included a slide that shows how you can start with return on equity and decompose return on equity into the different drivers. The reason we are doing it is to try to get some sense for what we have in the financial statements that is likely to repeat itself in the future. So identifying what is transitory in the income statement and what is not trivial, but it's a critical component of profitability analysis. It's one that is directly related to whether the earnings are sustainable or not.
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