A TEST OF CASH MANEUVERABILITY AS A SURROGATE FOR ADAPTABILITY Thesis for the Degree of Ph. D. MICHIGAN STATE UNIVERSITY GORDON 8. MAY ' 1972 LIbl‘i/n .I‘.‘ Y Midfigefq Static Us.‘..iv.::r3i ty This is to certify that the thesis entitled CASH MANEUVERABILITY AS A SURROGATE FOR ADAPTABILITY presented by Gordon S. May has been accepted towards fulfillment of the requirements for Ph.D Accounting — Business Jegree in new... Major professor 8 1 72 Date / / 0-7639 B'ND'N‘G BY "BAG 8: SUNS' . “300K BINDERY INC. BMRY BINDE RS 1 “n 0133339??? fittiiifgfi "ll - cally financ of a 1 adapta and to abilit Chang: Strain- °3Paci' Cash w} to asET ABSTRACT A TEST OF CASH MANEUVERABILITY AS A SURROGATE FOR ADAPTABILITY BY Gordon S. May The purpose of this research was to test empiri— cally the ability of the cash maneuverability ratio, a new financial ratio, to stand as a surrogate for the ability of a firm to adapt to changing market conditions. R. J. Chambers has suggested that a concept of adaptability is important to firms with indefinite lives and to investors in those firms. He uses the term "adapt- ability" to refer to the capacity of a firm to adjust to changing market conditions, and he considers the current cash equivalent (an Opportunity cost) of assets as a con- straint upon adaptability. According to this logic, a firm is limited in its capacity to adapt to changing conditions by the amount of cash which management may spend for such purposes (referred to as maneuverable cash in this study). and this cash is in turn limited by the amount which may be received through the orderly liquidation of assets. This concept of adaptability, although loqical within its context, is equiI apprc facto adapt stati basis withix to 19' of Gas Gordon S. May limited by the statics implied. Chambers concerns himself only with stocks of cur- rent cash equivalents at one point in time and chooses to ignore the concept of flgwg of cash during time intervals. Thus, the ability of a firm to adapt using cash generated from sources such as the issuance of additional debt or equity securities is not considered when the static approach is utilized. The quality of management is another factor which can be accepted a priori as important to the adaptability of a firm and which is not included in the static concept. This study measured maneuverable cash on a £19! basis for each of 158 firms during various shorter periods within a larger period covering the fifteen years from 1955 to 1971. The measurement was made by determining the amount of cash over which management had control during a period and subtracting that amount which was reinvested in cur- rent Operations. Thus, maneuverable cash on a flow basis becomes the total of net cash flow from Operations plus cash generated from liquidation of assets, issuance of long-term debt, and issuance of ownership equity. This maneuverable cash was then divided by ending total assets to arrive at a cash maneuverability ratio (CMR) whic COIIE long measu measu tiOns at th adap f‘?‘ 1‘! 9 t \ Gordon S. May which was used as a relative measure Of the adaptability of a firm. Assuming the objective of management to be the maximization of shareholder wealth, the rate of return to shareholders was taken as a relative measurement of how well a firm had adapted. The cash maneuverability ratio and the rate of return to shareholders (Rit) were then correlated over 36 sets of lagged periods two to five years long for each of the 158 firms, e.g., in one case the CMR's measured during 1957-1960 were correlated with the Rit's measured during 1960-1963. The results of these correla- tions were then analyzed. Significant positive correlation at the .05 level would have supported the hypothesis of this study that the CMR may be used as a surrogate for the adaptability of a firm. The following observations were made: 1. The tests conducted upon all Observations together showed a higher frequency of signifi— cant negative correlation than Of significant positive correlation. 2. Tests conducted upon observations relating to only those firms isolated by equal lower and upper percentiles of the distribution of the lie; Gordon S. May observations of Rit revealed the following: a. The frequency of significant negative correlation decreased consistently as the percentiles were increased from 10th to 25th percentiles in steps of 5th per— centiles. b. Significant positive correlation increased in frequency by over 600% and exceeded the frequency of significant negative corre- lation. 3. Tests conducted upon observations remaining in the mid-range of the distribution of observa— tions of Rit's after removal of upper and lower percentiles revealed that significant negative correlation completely disappeared with only one exception. 4. When the same tests were conducted upon obser- vations of firms isolated by industry. there was found to be no significant change in results. Although there was not enough evidence found from the tests conducted to statistically support the hypothesis that the CMR may be a valid surrogate for adaptability, Gordon S. May there was enough evidence to suggest on a non-statistical basis that the CMR may be useful as such a surrogate under pr0per conditions. Certainly, it seems unlikely that sig- nificant positive correlation could be found in the tails of the distribution to the extent it was found in this study, and be present only as the result of chance. A TEST OF CASH MANEUVERABILITY AS A SURROGATE FOR ADAPTABILITY BY Gordon SfFMay A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Accounting and Financial Administration 1972 COpyright by GORDON S. MAY 1972 ACKNOWLEDGMENTS I wish to express my gratitude to the Department of Accounting and Financial Administration of the Graduate School of Business Administration at Michigan State Univer- sity, and to Professors James Don Edwards and Gardner M. JOnes who served as Chairmen of the department, for pro- viding the financial support which made the completion of this study possible. To Professor Roland F. Salmonson, under whose tute— lage the idea for this study was born, and who served as chairman of my dissertation committee, I am deeply indebted for guidance and encouragement and for always finding the time to promptly review and comment upon the various drafts of this study. Professor Melvin C. O'Connor served on my committee and provided invaluable assistance to me by critiquing many of my ideas and by providing me with some fresh approaches to problems with the data and methodology Which at times appeared to be insuperable. Professor Richard Staudte of the Statistics Department also served on my committee and ii provided crucial assistance in the selection of statistical methodology and in the evaluation of the results of statis- tical tests. Special thanks must go to Professors Alden Olson, Floyd Windal, George Mead, Hugo Nurnberg, and James Lampe for reviewing early versions of the written prOposal for this research. Their many comments were invaluable in dealing with many of the weaknesses of my early ideas. To JO McKenzie, who labored at typing the final draft of this dissertation from a manuscript replete with numerous typing errors and bad penmanship, I extend a special measure of gratitude. Finally, to my wife Mary, who was unlucky enough to be put through the special misery of sharing my dis- appointments and frustrations during the difficult times and Who met that challenge by providing me with the much needed love and encouragement only she could provide, I owe a debt which can never be repaid. iii TABLE OF CONTENTS TABLE OF TABLES. . . . . . . . . . . . . . . . TABLE OF EXHIBITS. . . . . . . . . . . . . . . Chapter 1 INTRODUCTION TO THE STUDY . . . . . . . Statement of Purpose. . . . . . . . . Discussion of the Problem . . . . . . Development of the Research Hypothesis Definition of Maneuverable Cash. . Definition of Cash Maneuverability Definition of the Cash Maneuver- ability Ratio . . . . . . . . . . The Research Hypothesis . . . . . . . Methodology . . . . . . . . . . . . . Significance of this Research . . . . Limitations . . . . . . . . . . . . . Relevant Literature . . . . . . . . . 2 DETERMINING THE CASH MANEUVERABILITY RATIO. . . . . . . . . . . . . . . . . Net Cash Flow from Operations . . . . Cash Received from the Liquidation of Assets. . . . . . . . . . . . . . Cash Received from Issuance of Long-Term Debt . . . . . . . . . . . Cash Received from Issuance of Preferred Stock. . . . . . . . . . . Cash Received from Issuance of Common Stock . . . . . . . . . . . . 3 THE EMPIRICAL TESTS AND THEIR RESULTS . iv Page vi \OxlOll-‘l-J 10 17 19 21 24 25 26 3O 31 32 34 C1133 APPS BIBLfl Chapter Tests of Correlation Using All Firms for Which There Were Available Data. Tests of Correlation Using Only Firms Having Rit's in the Tails of the Distribution . . . . . . . . . . . . Tests of Correlation Using Only Firms Within Specific Industries . . . . . 4 SUMMARY AND CONCLUSIONS . . . . . . . . Summary and Conclusions . . . . . . . Suggestions for Further Research. . . APPENDIX A DEFINITION (N? COMPUSTAT VARIABLES. . . B GRAPHS OF CMR'S AND RIT'S FOR EACH OF THE THIRTY-SIX LAGGED SUB-PERIODS. . . C FIRMS USED IN THE STUDY IN ORDER OF THEIR APPEARANCE ON THE COMPUSTAT TAPE BIBLIOGRAPHY . . . . . . . . . . . . . . . . . . Page 36 38 54 62 62 71 73 80 116 120 h 13':- '.‘.L .. . II: II-E III-A 111-3 III-c III~D TABLE OF TABLES Table Page I Lagged Periods Over Which Variables Were Correlated . . . . . . . . . . . . . . 13 II-A Correlation Of 158 Observations Of CMR With 158 Observations Of RIT During 36 Lagged Periods . . . . . . . . . . . . . 37 II-B Analysis Of Results Of Correlation Of 158 Observations Of CMR With 158 Observations Of RIT During 36 Lagged Periods. . . . . . . . . . . . . . . 38 III-A Correlation Of CMR'S and RIT'S Observed For Firms For Which RIT'S Were Observed In Either The Upper 10th Percentile Or The Lower 10th Percentile Of The Distri- bution Of All RIT'S For All Firms . . . . . 39 III-B Analysis Of Results Of Correlation of CMR'S and RIT'S Observed For Firms For Which RIT'S Were Observed In Either The Upper 10th Percentile Or The Lower 10th Percentile Of The Distribution Of All RIT'S For All Firms . . . . . . . . . . . . 40 III-C Correlation Of CMR'S and RIT's Observed For Firms For Which RIT'S Were Observed Between The Lower 10th Percentile and The Upper 10th Percentile Of The Distri- bution Of All RIT'S For All Firms . . . . . 41 III-D Analysis Of Results of Correlation Of CMR'S and RIT'S Observed For Firms For Which RIT'S Were Observed Between The Lower 10th Percentile and The Upper 10th Percentile Of The Distribution of All RIT'S For All Firms . . . . . . . . . . . . 42 vi IV~ Iv-n V‘C Table IV-A IV-B IV-C IV-D page Correlation Of CMR'S and RIT'S Observed For Firms For Which RIT'S Were Observed In Either The Upper 15th Percentile Or The Lower 15th Percentile Of The Distri- bution Of All RIT'S For All Firms . . . . . 44 Analysis Of Results Of Correlation Of CMR‘S and RIT'S Observed For Firms For Which RIT'S Were Observed in Either The Upper 15th Percentile Or The Lower 15th Percentile Of The Distribution Of All RIT'S For All Firms . . . . . . . . . . . . 43 Correlation Of CMR‘S and RIT'S Observed For Firms For Which RIT'S Were Observed Between The Lower 15th Percentile And The Upper 15th Percentile Of The Distribution Of All RIT'S For All Firms. . . . . . . . . 45 Analysis Of Results Of Correlation of CMR's and RIT'S Observed For Firms For Which RIT‘S Were Observed Between The Lower 15th Percentile And The Upper 15th Percentile Of The Distribution Of All RIT's For All Firms . . . . . . . . . . . . 43 Correlation Of CMR'S and RIT'S Observed For Firms For Which RIT'S Were Observed In Either The Upper 20th Percentile Or The Lower 20th Percentile Of The Distri— bution Of All RIT'S For All Firms . . . . . 46 Analysis Of Results Of Correlation Of CMR'S and RIT'S Observed For Firms For Which RIT'S Were Observed in Either The Upper 20th Percentile Or The Lower 20th Percentile Of The Distribution Of All RIT'S For All Firms . . . . . . . . . . . . 47 Correlation Of CMR'S and RIT'S Observed For Firms For Which RIT’S Were Observed Between The Lower 20th Percentile And The Upper 20th Percentile Of The Distri- bution Of All RIT’S For All Firms . . . . . 48 vii a_—_-——-- YV'I- VI-E VI I VIII. VTII‘ Table Page V—D Analysis Of Results Of Correlation Of CMR'S and RIT'S Observed For Firms For Which RIT'S Were Observed Between The Lower 20th Percentile And The Upper 20th Percentile Of The Distri- bution Of All RIT‘S For All Firms . . . . . 47 VI—A Correlation Of CMR'S and RIT'S Observed For Firms For Which RIT'S Were Observed In Either The Upper 25th Percentile Or The Lower 25th Percentile Of The Distri- bution Of All RIT'S For All Firms . . . . . 49 VI-B Analysis Of Results of Correlation Of CMR'S and RIT’S Observed For Firms For Which RIT'S Were Observed In Either The Upper 25th Percentile Or The Lower 25th Percentile Of The Distribution Of All RIT‘S For All Firms. . . . . . . . . 51 VI-C Correlation Of CMR'S and RIT'S Observed For Firms For Which RIT'S Were Observed Between The Lower 25th Percentile And The Upper 25th Percentile Of The Distri- bution Of All RIT'S For All Firms . . . . . 50 VI—D Analysis Of Results Of Correlation Of CMR'S and RIT'S Observed For Firms For Which RIT'S Were Observed Between the Lower 25th Percentile And The Upper 25th Percentile Of The Distribution Of All RIT'S For All Firms . . . . . . . . . . . . 51 VII Ranges Of High And Low Values For The CMR And The RIT . . . . . . . . . . . . 54 VIII-A Correlation Within The Chemical Industry Of 18 Observations Of CMR With 18 Obser- vations Of RIT During 36 Lagged Periods . . 56 VIII-B Analysis Of Results Of Correlation Within The Chemical Industry Of 18 Observations Of CMR With 18 Observations Of RIT During 36 Lagged Periods . . . . . . . . . . . . . 55 viii Table IX-A IX-B XI-B Page Correlation Within The Electrical Industry Of 16 Observations Of CMR With 16 Observations Of RIT During 36 Lagged Periods . . . . . . . . . . . . . 57 Analysis Of Results Of Correlation Within The Electrical Industry Of 16 Observations of CMR with 16 Observations Of RIT During 36 Lagged Periods . . . . . . 55 Correlation Within The Automotive And Aircraft Industries Of 22 Observations Of CMR With 22 Observations Of RIT During 36 Lagged Periods. . . . . . . . . . 58 Analysis Of Results Of Correlation Within The Automobile And Aircraft Industries Of 22 Observations Of CMR With 22 Observations Of RIT During 36 Lagged Periods. . . . . . . . . . 6O Correlation Within The Machinery Manu- facturing Industry Of 10 Observations Of CMR With 10 Observations Of RIT During 36 Lagged Periods. . . . . . . . . . 59 Analysis Of Results Of Correlation Within The Machinery Manufacturing Industry Of 10 Observations Of CMR With 10 Observations Of RIT During 36 Lagged Periods. . . . . . . . . . 6O ix Exhibit I II III IV TABLE OF EXHIBITS Page Calculation Of Net Cash Flow From Normal Operations Using Compustat . . . . . 25 Calculation Of Cash Received From Liquidation Of Assets Using Compustat . . . 27 Calculation Of Cash Received From Issuance of Long—Term Debt Using Compustat . . . . . . . . . . . . . . . . . 30 Calculation Of Cash Received From Issuance of Preferred Stock Using Compustat . . . . . . . . . . . . . . . . . 32 Calculation Of Cash Received From Issuance of Common Stock Using Compustat . . . . . . . . . . . . . . . . . 33 cash to 5: t0 ch adapt and tc nadap1 CHAPTER 1 INTRODUCTION TO THE STUDY STATEMENT OF PURPOSE The purpose of the research reported upon in this dissertation was to test empirically the ability of the cash maneuverability ratio (CMR), a new financial ratio, to stand as a surrogate for the ability of a firm to adapt to changing market conditions. DISCUSSION OF THE PROBLEM R. J. Chambers has suggested that a concept of adaptability is important to firms with indefinite lives1 and to investors in those firms.2 He uses the term "adaptability" to refer to the capacity of a firm to . . 3 . adjust to changing market conditions, and he cons1ders 1Raymond J. Chambers, Accounting, Evaluation and Economic Behavior (Englewood Cliffs, N. J.: Prentice-Hall, 1966), p. 203. 2Ibid., p. 227. 3Ibid., p. 244. turn the : abil- by t? rent i{Thor Thus, from : 93.11itf approé 2 the current cash equivalent (an Opportunity cost) of assets as a constraint upon adaptability.4 According to this logic, a firm is limited in its capacity to adapt to changing conditions by the amount of cash which management may spend for such purposes (referred to as maneuverable cash in this study), and this cash is in turn limited by the amount which may be received through the orderly liquidation of assets. This concept of adapt- ability, although logical within its context, is limited by the statics implied. Chambers concerns himself only with stocks of cur- rent cash equivalents at one point in time and chooses to ignore the concept of flgwg of cash during time intervals. Thus, the ability of a firm to adapt using cash generated from sources such as the issuance of additional debt or equity securities is not considered when the static approach is utilized. The quality of management is another factor which can be accepted a priori as important to the adaptability of a firm and which is not included in the static concept. Chambers makes reference to the fact that "discretion (of management) must be allowed if the association (firm) is 41bid., p. 92. 3 to adapt its actions to its environment,"5 but he then does not attempt to measure management in terms of current cash equivalent. This undoubtedly is due to the difficulty of arriving at an acceptable value. In any event, to ignore management, as the static approach does, is to ignore a major factor of adaptability. Horngren has stated in his managerial accounting text that "well-conceived plans incorporate enough flexi— bility or discretion so that the manager may feel free to seize any unforseen Opportunities to improve efficiency or effectiveness."6 His remark would seem to apply to the concept of adaptability in general. Two key words he uses are "flexibility" and "discretion". Although Horngren uses the conjunction “or" to couple these terms, it would seem appropriate to substitute the conjunction "and" in its place, since these terms may be used to refer to the major subdivisions of adaptability. Flexibility is a characteristic of a firm reflect— ing past management action which has to do with financial structure, information systems, and organization. 5Ibid., p. 61. 6Charles T. Horngren, Cost Accounting - A Manage- rial Emphasis, Second Edition (Englewood Cliffs, N. J.: Prentice-Hall, 1967), p. 6. ency then 4 Financial structure may provide flexibility if it is such that it enhances the firm's ability to raise additional capital or to vary normal Operations easily when faced with cyclical or seasonal pressures. Information systems may provide flexibility if they provide for rapid generation and communication of information to enable management to make timely decisions. Organization is important to flexi— bility in that prOper organization can aid in the effici- ency and timeliness of management action. Flexibility, then, is an important element of adaptability. As flexibility is a characteristic of a firm attri- buted to past management, discretion is a characteristic attributed to present management. It refers to the skill with which decisions are made. In short, it refers to the ability of management to take advantage of flexibility. A firm with flexibility but without adequate management dis- cretion is not adaptable; neither is a firm which possesses much management discretion but very little flexibility. That adaptability is a constraint upon the success of a firm is accepted a priori. If the concept of adapt- ability is tO be utilized, however, the decision must be made whether to use a static approach, such as Chambers' current cash equivalents, or some type of flow approach. Clearly, any approach which disregards such important are 5 aspects of adaptability such as the ability to generate debt and equity funds or the quality of management, must be considered a choice second to one in which these aspects are incorporated. It is for this reason that this study attempted to test the ability of a flow measurement to serve as'a sur— rogate for adaptability. What would be most desirable would be some method which would allow all the many elements of flexibility and discretion to be quantified. No such method is likely to be available in the near future because of the inability to quantify qualitative and subjective elements. To rely only upon current cash equivalents, however, the one ele— ment which may be most easily quantified (although with questionable accuracy), is to neglect entirely the more subjective elements which are so very important. Although it is not possible to measure adaptive potential at its roots due to its many subjective elements, it may be possible to bypass this stage. What has been discussed so far as the over—all capacity of management to take adaptive action. This capacity cannot be measured in any satisfactory manner, but perhaps management_ag§ign can be measured with some degree of satisfaction. 6 DEVELOPMENT OF THE RESEARCH HYPOTHESIS Any management action involving resources under its control may be classified in one of three categories: (1) those actions which result from a decision to invest cash in the identical over-all project mix which is cur- rently being undertaken, i.e., Operations remain unchanged, (2) those actions which result from a decision to invest cash in new projects, and (3) those actions which result from a decision to invest cash in the same old projects but with a different project mix, i.e., no new projects are added, but the investment in some projects is lessened and in others increased. Note two points here. First, a decision to hold cash or to pay cash to shareholders in the form of dividends represents either an investment of cash in cash balances or an investment of cash in ownership goodwill, respectively. Thus, there can be no cash which is not invested, Second, an investment of cash may be either passive or active. A passive investment of cash occurs when a decision is made not to liquidate an asset. Thus, Chambers' notion of cur- rent cash equivalents is relevant here since it represents a measure of the passive investment of cash. An active investment of cash occurs when cash actually flows through the hands of management. Since all passive investments of pr va tic mid 7 cash represent decisions by management to continue with previous projects only active investments of cash are rele— vant in adapting to changing conditions. If the amount of cash over Which management has had control during a specific period is determined, and from this the amount of cash reinvested in current opera- tions is subtracted, the remainder is that which has been made available during the period for adaptive purposes. This remainder, hereafter referred to as maneuverable cash, may be operationally defined as the sum of the following: 1. Net cash flow generated by normal business Operations, i.e., accounting net income plus non-cash charges (e.g., depreciation or depletion), minus non-cash credits (e.g., amortization of premiums on bonds payable), plus any increase in current liabilities or minus any decrease in current liabilities, plus any decrease in current assets or minus any increase in current assets. 7It is true, of course, that passive investment reduces adaptability but then so does an active investment once it has been made. It is important to note that it is not necessary to make the assumption that any particular investment, active or passive, is wise or unwise. It may be assumed that unwise decisions by management will impair future adaptability. O n C c 3P1 I”T ef 8 Note that this is true cash flow from normal Operations and not just working capital sup- plied by normal Operations to which the term "cash flow" is usually applied. 2. Cash generated by more positive management action such as:8 a. Liquidation of assets b. Issuance of additional long-term debt c. Issuance of additional ownership equity Chambers suggested that the over-riding constraint on adaptability is the amount of cash which management can control for such purposes, which in turn is limited by potential liquidation values of assets assuming orderly liquidation. The limitation described by current cash equivalents of assets has been shown earlier in this dis— cussion to be questionable at best since it cannot measure control of potential cash. Due to the complexity of the definition of adaptability, there is no other surrogate for potential cash control currently available to the analyst. It would seem, however, that maneuverable cash, which measures the actual cash available for adaptive 81f any of the following have negative values the effect on maneuverable cash is considered to be zero. 1‘. ht 8C2 fir: ably mane ofc were mane 9 action rather than the potential cash available, would serve well as a surrogate for adaptability. This of course assumes a priori the basic supposition by Chambers that cash is a major constraint in the adaptive process. Cash maneuverability, then, is the ability of a firm to adapt to changes in its environment using maneuver- able cash. Different firms with the identical amounts of maneuverable cash, however, may not have the same degree of cash maneuverability. This would be true if the firms were different in size. A large firm with the same amount Of maneuverable cash as a smaller firm would be less maneuverable. To allow meaningful comparisons of firms of various sizes in terms of cash maneuverability, maneuverable cash attributable to any one firm should be divided by total assets Of that firm. This cash maneuverability ratio for each firm would allow firms to be compared in terms of maneuverable cash regardless of variations in size. THE RESEARCH HYPOTHESIS The hypothesis of the research was that the cash maneuverability ratio may be used as a surrogate for the adaptability of a firm. IF“ age in the c 101 10 METHODOLOGY It was assumed that the objective of the firm should be to maximize the wealth of stockholders.9 There- fore, it was possible to Operationally define successful adaptiOn or unsuccessful adaption in terms of the percent- age change in the value of a share of stock over time, or in other words, the rate of return to shareholders on their investment. This rate of return was calculated using the following formula assuming discrete compounding:10 n '-k R =k§1Diktu+~§><1+r>3 +Pit'Pit—l it I nPit-l 9This is an assumption which many writers in finance accept. See for instance, J. Fred Weston & Eugene F. Brigham, Managerial Finance, Third Edition (New York: Holt, Rinehart and Winston, 1969), p. 13.: James C. T. Mao, Quantitative Analysis of Financial Decisions (London: The MacMillan Company, 1969), p. 18.: Adolph E. Grunewald & Erwin Esser Nemmers, Basic Manage— rial Finance (New YOrk: Holt, Rinehart and Winston, 1970), pp. 7—9. 10For further discussion of common stock rate of return calculation see Eugene F. Fama, "The Behavior of Stock Market Prices," JOurnal of Business, XXXVIII (January, 1965), pp. 34-105.: James H. Lorie & Lawrence Fisher, "Rates of Return of Investment in Common Stocks," Journal of Business, XXXVII (January, 1964), pp. l-21. 11 Where: :0 II it Average annual rate of return on stock 3 over period t. Pit = Price of stock i at end of period t. Pit—l = Price of stock i_at beginning of period t, adjusted for stock dividends and stock splits. Dikt = Cash dividends paid on stock i during year k.of period t (assumed to be received all at mid—year). :3 ll Number of years covered by period 5. r = Rate of annual interest at which stock- holders were assumed to invest cash 11 received as a dividend (6% in this study). j = Last year of period t. k = Year during which dividend was paid. For any given period 5, firms which have success— fully or unsuccessfully adapted were determined by com— paring the Rit for each firm with the mean value Of the distribution of the Rit's for all firms. Thus, by defini— tion, a firm with an above average Rit has successfully adapted whereas, a firm with a below average Rit has un- successfully adapted. This calculation of rate of return was made during 11A rate of 6%.was chosen arbitrarily for the pur— poses of this study. Any rate might have been chosen as long as it was greater than zero. 12 various sub-periods, as indicated in Table I, with sample data collected during the larger period from January 1, 1956 to January 1, 1971. This fifteen year period was considered long enough to encompass normal business cycle pressures as well as long enough to provide flexibility in choosing shorter sub—periods running from one to five years. Market values used were averages of the high, low, and close values for the year so that effects of unusual and temporary market factors such as seasonal variation and short-term Speculation were minimized. Firms chosen for the samples were restricted to those for which information was available for fifteen years on the COMPUSTAT Annual Industrial tape compiled by Standard Statistics Corporation. From a list of these firms, five sample pOpulations were selected. One sample contained 158 firms.12 This sample was used to test the research hypothesis without regard to possible industry effects. It is of course possible that technological aspects Of a given industry may be such that adaption is much more difficult and less frequent. Indeed, it might be expected that firms in the steel industry for example, would find, because of their 12This figure corresponds to the actual number of firms for which enough information is available on the COMPUSTAT tape . Sub-Pe riod 2-Year Sub-I 3-Year Sub—Pe (“Year Sub-Pe 5~Year Sub‘P61 LAGGED PERIODS OVER WHICH VARIABLES WERE CORRELATED 13 TABLE I No. of Sub-Period Class CMR of Kit of Sub- Period Period Period 2-Year Sub-Periods: (12) '55-'57 '57-'59 l '56-'58 '58-'60 2 '57-‘59 '59-‘61 3 '58-‘60 '60—‘62 4 '59-‘61 '61-‘63 5 '60-‘62 '62-'64 6 '61-'63 '63-‘65 7 '62-‘64 '64-‘66 8 '63-‘65 '65-‘67 9 '64-'66 '66-'68 10 '65-'67 '67-'69 11 '66-'68 '68-'70 12 3-Year Sub-Periods: (10) '55-'58 '58-‘61 l3 '56-'59 '59-‘62 l4 '57-'60 '60-'63 15 '58-'6l '61-'64 16 '59-‘62 '62-'65 17 '60-'63 '63-'66 18 '61-'64 '64-‘67 19 '62-'65 '65-'68 20 '63-‘66 '66-‘69 21 '64-'67 '67-'70 22 4-Year Sub-Periods: (8) '55-'59 '59-'63 23 '56-'60 '60-‘64 24 '57-'61 '61-‘65 25 '58-'62 '62-'66 26 '59-'63 '63-'67 27 '60-‘64 '64-‘68 28 '61-'65 '65-'69 29 '62-'66 '66-‘70 30 .S-Year Sub-Periods: (6) '55—'60 '60-‘65 31 '56-'61 '61-'66 32 '57-‘62 '62-'67 33 '58-'63 '63-‘68 34 '59-'64 '64-'69 35 '60-‘65 '65-‘70 36 —_._—-——— 4_.-‘ "'---. very heavy to changes be signifi dustry whi lived asse tries may . ratios.l3 In four other ticular inc Corporatior Vided the f For and Rit ' S 'A ing to the Of Rit.s f0 and Percent \ 13I which makes Others. I 14,?» number of f. follows; Mac: 14 very heavy capital investment, that their ability to adapt to changes in their Operating and market environment would be significantly less than, for example, the finance in- dustry which requires little capital investment in long- lived assets. If this is the case, then different indus- tries may categorically have different cash maneuverability ratios. In an effort to shed some light upon this point, four other samples were chosen, each restricted to a par- ticular industry classification used by Standard Statistics Corporation. The industries chosen were those which pro- vided the four largest numbers of observations.14 For each of the firms within these samples, CMR's and Rit's were calculated for various sub-periods accord- ing to the schedule shown in Table I. Distributions of of Rit's for each sample were determined by sub-periods and percentiles were calculated. 13It may be that it is this very characteristic which makes some industries better investment risks than others. 14The industries which were used together with the number of firms within each which were tested are as follows: " Machinery Manufacturing ............... 10 Chemicals... .......... . ............... 18 Electronics.............. ..... . ....... 16 Automotive and Aircraft.... ........... 22 CMR's and individual per termed - data corre. which had I distributi' Po tion to t} and lOWer SGparate I in the mi 3180 corr Statistic; 'YPG 0f d; Characteh which the Valuable I; SUCh as t}, This test “18 correl 15 Correlation analysi31nfing Spearman's Rank Correla- . 15 . tion tests were conducted in two stages. In stage one, CMR's and Ri 's of each sample were correlated within t individual sub-periods. In stage two the same tests were performed as were performed in stage one except that the data correlated was restricted to that gathered from firms which had Rit's which appeared within percentiles in the distribution. For example, one such test restricted the correla- tion to the firms with RJ.- '3 which appeared in the upper t and lower 25% of the distribution of all Rit's. In a separate calculation the firms with Ri 's which appeared t in the middle 50% of the distribution of all Rit's were also correlated. Thus, first the tails of the distribution 15Spearman's rank correlation is a non-parametric statistical test which is particularly applicable to this type of data as it requires no assumption as to the characteristics of the distribution of the universe from which the sample observations are drawn. It is especially valuable when applied to parts of the sample distribution such as the tails to which it was applied in this study. This test uses the following standard formula to determine the correlation coefficient: r ' 'v 1 of Rit'S i Rit's and them were CMR's were peated for 15th, 20th mid-ranges to firms id or poor ada compared t: shown less Sta industrial tails of ti" allow for 5 Thu and alter-m. \ 16 T 16 of Rit's in terms of percentiles were identified and the Rit's and CMR's of the firms which had Rit's falling within them were correlated, and then the mid-range R1 '5 and t CMR's were correlated separately. These tests were re- peated for tails identified by the upper and lower 10th, 15th, 20th, and 25th percentiles and the corresponding mid-ranges. In this way, correlation tests were restricted to firms which had shown various extremes of either good or poor adaptation. The results of these tests were then compared to results of similar tests of firms which had shown less extremes of adaptation.16 Stage two testing was not performed upon the four industrial samples since the numbers<flfobservations in the tails of the sample distributions were not large enough to allow for significant testing.17 Thus, for each of the correlation tests, the null and alternate hypotheses which were tested are: l6Thus, 468 rank correlation tests were performed (13 samples X 36 sub-periods = 468). 17The largest number of firms in one industry which was available on COMPUSTAT was 46 (textile apparels). This was before the elimination of those firms for which 15 years of data were not available. Even if all 46 firms had been usable, the number of firms which would have been found within the 10th percentile tails would have been only 4 or 5. 0 Sta nificant cc ClasSes and Correlation the same cl two testing than among SIG 'C: W If ; Rit Were f01 concluded t1 adaptabilit) tion hem/Se cause an d e 17 H : There is no correlation between the CMR's and the Rit's at a .05 level of significance, i.e., these two variables are mutually inde- pendent, i.e., they are not dependent. H : There is correlation at a .05 level of sig- nificance, i.e., there is a tendency for the larger values of the CMR to be paired with the larger values of the Rit‘ Stage one testing was used to determine (a) if sig- nificant correlation existed in any of the four sub-period classes and, if so, in which class the most significant correlation was found, and (b) among sub-periods within the same class, how much the correlation varied. Stage two testing was used to determine whether there was a better correlation to be found among extremes of adaption than among the more common values. SIGNIFICANCE OF THIS RESEARCH If significant correlation between the CMR and the Rit were found for firms over a lagged period, it would be concluded that the CMR may be used as a surrogate for adaptability. This research would have shown an associa- tion between the CMR and the Rit which, although not a cause and effect relationship, may prove to be useful to l A i. hiVe been U! financial relation r tions only bution, th the risk 0 shown to b and wide v Al find a mea nificant c Concluded Useful ind by avoidin in a Very lessened. In hYpomesis research on the hYPOt he 18 financial analysts. It seemed possible that significant positive cor- relation might have been found within industry classifica- tions only. In this case the conclusion would have been that a useful association between the two variables exists within certain industries. If significant correlation were found only for firms in the tails of the Rit distri- bution, the CMR would have been useful as an indication of the risk of an investment since there would have been shown to be a relationship between significant correlation and wide variance about the expected value. Although it was not the purpose of this study to find a means of predicting stock market prices, if a sig- nificant correlation had been found, it would have been concluded that the cash maneuverability ratio would give a useful indication of risk in investment. It might be that by avoiding firms with a low ratio, the chance of investing in a very low performance stock can be substantially lessened. In addition to these benefits, if the research hypothesis were supported, an incentive to do additional research on related aspects would have been provided. If the hypothesis were not supported, this fact would also have been useful in determining the direction of further research ’ LIMITATIO) Tl. appear to CMR to pre tested in 19 research on the subject of adaptability. LIMITATIONS There were two limitations of this study which appear to be worth discussing. First, the ability of the CMR to predict could have been tested, but it was not tested in this study for the following reasons: 1. Although financial ratios have been shown to be useful when used to predict certain financial difficulties, past studies have found evidence that they do a poor job of predicting degrees of over-all success.18'19 2. It would seem to be desirable to investigate the behavioral aspects of the CMR before attempting to incorporate it into some type of predictive model. 3. If a statistically significant correlation between the CMR and the Rit were found, 18See for example, James O. Horrigan, "Some Empirical Bases for Financial Ratio Analysis," The .Agcounting Review, XL, No. 3 (July, 1965), pp. 566-568: and Melvin C. O'Connor, "An Empirical Examination of the USefulness of Financial Ratios to Investors in Common Stocks" (unpublished Ph.D. dissertation, University of 'Kansas, 1971), pp. 124-127. 19See the Bibliography at the end of this paper. calculat: some lim: tape. A bond pren other inf income co 0f non-ca: t'Bl'm asset was not 51 T11 aSSetS co“ was exPact should be Th calculatio of the hig the Year 11 for which : been mOre E able 0n the Prices were 20 predictability could be tested in subse- quent research. Second, there were some minor inaccuracies in the calculation of maneuverable cash and rate of return due to some limitations of the data available on the COMPUSTAT tape. A few non-cash items, such as the amortization of bond premiums or discounts, could not be isolated from other information on the tape and thus adjustments of net income could not be made for these. The largest portion of non-cash items, depreciation and amortization Of long- term assets, was available, however, so this deficiency was not significant. The amount of cash received from liquidation of assets could only be approximated, but this approximation was expected to be close so that any deviation in accuracy should be immaterial. The price used for stock in the formula for the calculation of the rate of return of stock was an average of the high, low, and close figures for the last year and the year immediately preceding the first year of the period for which it was calculated. Six month averages would have been more apprOpriate, but monthly prices were not avail- able on the annual COMPUSTAT tape and other sources of prices were either not available or not practical to use eith anal of m to r: ‘7. In I.) (1: 21 either from the point of time or of financial resources. The average used, however, was sufficient to compensate for most transitory market pressures and should have been an adequate relative measure. The inclusion of the close figure allowed the price to be weighted toward the year- end market value. RELEVANT LITERATURE Although much has been published concerning ratio analysis, "cash flow," and funds statements, the concepts of maneuverable cash and the cash maneuverability ratio do not appear in the literature. There has been no attempt to relate cash flows to Chambers' concept of adaptability. Some studies have been done in an effort to relate general cash flow to market prices of stock or to dividends, but these (a) have not restricted the definition of cash flow as this study did, (i.e., the concept of maneuverable cash has not been used), (b) did not consider cash flow as a percentage of investment, and (3) used significantly dif- ferent methodologies. Andersen, in an attempt to evaluate the usefulness of selected accounting data in forecasting dividends, cor- related cash earnings and capital expenditures with divi- dends with a zero time lag and one-year and two-year time H i h k‘tzzwflrf" 1‘. J" " Ir I ‘fim ‘ I I lags cone in f the year per : ten : 22 lags during the eleven years between 1951 and 1961. He concluded that neither variable was particularly helpful in forecasting dividends. One reason for this was that the correlation tended to vary substantially from year to year.20 Zimmer correlated earnings per share and cash flow per share with market price and found that in six out of ten industries earnings per share was more highly corre- lated with market price than was cash flow per share. However, within these industries, for two-thirds of the firms there was shown a higher correlation of cash flow to market price than of earnings per share to market price. Tolbert regressed earnings, dividends and cash flow against market prices of stock and found that no one of these variables showed a relationship to market prices consistent enough to be significant in general. For a given firm, however, any one of these variables could occasionally be shown to have a significant relationship.22 20Anker Valdemer Andersen, "Relevant Accounting Data For the Investor in Listed Common Stocks" (unpublished Ph.D. dissertation, University of Minnesota, 1964), 139 pp. 21Robert K. Zimmer, "An Empirical Analysis of Stock Market Price Determinants," (unpublished Ph.D. dis- sertation, The Ohio State University, l964).224 pp. 22William F. Tolbert, "Earnings, Cash Flow, Divi— dend Payout and Growth Influences on the Price of Common Stocks," (unpublished Ph.D. dissertation, Louisiana State University and Agricultural and Mechanical College, 1968), 226 pp. le CE re 23 None of these studies bore directly upon the prob- lem or the methodology with which this research was con- cerned, and no other has been found which was more directly related to either this problem or this methodology. CHAPTER 2 DETERMINING THE CASH MANEUVERABILITY RATIO The two variables which were correlated in this study, i.e., the cash maneuverability ratio and the rate of return on investment to shareholders, were introduced in the first chapter. This chapter reports upon the cal- culation of one of these, the cash maneuverability ratio (CMR), using the data available through the COMPUSTAT ser- vice of the Standard Statistics Corporation. The calcula- tion of the rate of return to shareholders is much less involved and was adequately discussed in Chapter 1. Definitions Of COMPUSTAT data are available in Appendix A. The cash maneuverability ratio was defined in Chapter 1 as maneuverable cash divided by the total of assets at the end of the period. Maneuverable cash was in turn defined as the sum of (a) net cash flow generated by normal business Operations, (b) cash generated by liquida- tion of assets, (c) cash generated through the issuance of additional long-term debt, (d) cash generated through the issuance of ownership equity securities. 24 V?“ I .‘u- he 6 iten COHII and cU 25 NET CASH FLOW FROM OPERATIONS Net cash flow from normal business Operations may be described as the net income of the firm before non-cash items such as depreciation, amortization and depletion, before extraordinary items, after interest expense and in- come taxes, and adjusted for changes in current liabilities and current assets. Exhibit I indicates how this was cal- culated using compustat. EXHIBIT I CALCULATION OF NET CASH FLOW FROM NORMAL OPERATIONS USING COMPUSTAT Operating Income (13)* ......... .. ........................ xxxxx Plus: Decrease in Current Assets (4) ............... xxxx Increase in Current Liabilities (5) .......... xxxx xxxxx Less: Fixed Charges (15) ...... ........... .......... xxxx Income Taxes (16) .......... . ................. xxxx Increase in Current Assets (4).... ........... xxxx Decrease in Current Liabilities (5) ....... ... xxxx xxxxx Net Cash Flow From Normal Operations .................... . xxxxx *Number in parenthesis refers to the number of the definition in the COMPUSTAT Manual and to the number of the definition in Appendix A. Notice that "Operating Income" as defined for COMPUSTAT includes net sales less cost of sales and oper- ating expenses before depreciation, amortization and deple- tion. Thus, this figure must be adjusted for interest expense, income taxes and the change in the balance of current assets and current liabilities. The item "Fixed cha Cit” the ti: ti: CO} MW“. dbl-I.» ... v r... Sax ....— , re as. 26 Charges" includes more than interest expense. Also in— cluded is the amortization of debt discount or premium and the amortization of such items as underwriting and adver— tising costs. The fact that these other items cannot be isolated from the interest expense provides a small weak- ness in the data used. Since, however, it is reasonable to expect that these items constitute a rather small por- tion of the total "Fixed Charges", this weakness was not considered to be of much significance. CASH RECEIVED FROM THE LIQUIDATION OF ASSETS Cash received from liquidation of assets was the most complicated of the pieces to calculate. The figure may be reasonably approximated by establishing the net change in cash and near cash items during the period and then accounting piecemeal for this change until the remain- ing portion unaccounted for can only be the result Of the liquidation of assets. Exhibit II shows the procedure followed. Once the net change in cash and equivalent for the period had been established, the process of elimination began. Three cate- gories of transactions which affect cash balances were recognized, i.e., (l) transactions involving long-term assets, (2) transactions involving debt or equity ( VIA A. I SIIL 27 EXHIBIT II CALCULATION OF CASH RECEIVED FROM LIQUIDATION OF ASSETS USING COMPUSTAT Cash and Equivalent - End of Period (l)*.............. ........... xxxxxx Less: Cash and Equivalent - Beginning of Period (1)... ........ .. xxxxxx Net Change in Cash and Equivalent During Period.................. xxxxxx Less: Change in Cash and Equivalent Due to All Transactions Other Than Those Involving Debt or Equity Securities of the Firm or Involving Long-Term Assets Net Income (18) ‘xxxx Plus: Non-Recurring Income/Expense (Net of Tax) (48)........... ..... . xxx Depreciation & Amortization (l4)..... xxx Increase in Deferred Taxes (35)...... xxx Decrease in Current Assets (Except Cash) (4 & l)...... ....... xxx Increase in Current Liabilities (5).. xxx_ xxxx Total................ ........... ......... xxxx Less: Fixed Charges (15)............ xxx Income Taxes (l6)............. xxx Decrease in Deferred Taxes (35)xxx Increase in Current Assets (Except Cash) (4 & 1)...... xxx Decrease in Current Liab.(5).. xxx Preferred Dividends (l9)...... xxx Common Dividends (21)......... xxx xxxx xxxxxx Net Change in Cash and Equivalents Due to Transactions Involving Debt or Equity Securities of the Firm or Involving Long-Term Assets................................. . . xxxxxx Less: Change in Cash and Equivalents Due to Transactions Involving Debt or Equity Securities of the Firm: Increase in Long-Term Debt (9)..... .......... .. xxx Increase in Preferred Stock (Exhibit IV)................ ................ xxx Increase in Common Stock (Exhibit V) ........... ‘xxx, xxxxxx Net Change in Cash and Equivalent Due to Transactions Involving Long-Term Assets .......................... xxxxxx Plus: Purchase of Long-Term Assets: Capital Expenditures (30) ...................... xxx Increase in Investment and Advances to Subsidiaries (31) ........ . ................ xxx Increase in Investment and Advances - Other.... xxx Increase in Intangibles (32) ............ ....... xxx xxxxxx buy: Change in Cash and Equivalents Due to Liquidation of Assets.. raw *Number in parenthesis refers to the number of the definition in the COMPUSTAT Manual and to the number of the definition in Appendix A. 59' CO I'IC de 11‘. Bk rt Q~ \c A; QIU 28 securities, and (3) all other transactions. These are considered in reverse order in the exhibit. The "cash from all other transactions" was calcu- lated by adjusting net income for (a) non-recurring items not included in net income, (b) non-cash items such as depreciation, amortization, and depletion, (c) net changes in the balance of deferred taxes, current assets (except cash) and current liabilities, (d) income taxes, since they were not included in net income, and (e) dividend payments. Preferred and common dividends as shown by COMPUSTAT fig- ures are dividends declared rather than cash payments. Since, however, if there were a difference between the amount declared and the amount paid it would have shown up in current liabilities, it was corrected for when the net change in current liabilities was used as an adjustment. When the adjustment for "all other transactions" had been completed the remaining change in cash and equiv- alents was attributed to transactions involving debt or equity securities or involving long-term assets. The three types of securities involved, e.g., long-term debt, 23 preferred stock, and common stock were considered 23Cash resulting from transactions in other equity securities such as warrants and rights or cash received as a result of any other equity transaction was included with that resulting from transactions involving common stock. See Exhibit V in Chapter 3. 29 individually. Cash resulting from transactions involving long-term debt was taken to be the net difference between the beginning and the ending balance of long-term debt as defined by COMPUSTAT and as shown in Exhibit III. The effect of transactions involving equity securities had to be calculated in a slightly more involved manner as is shown in Exhibit IV and in Exhibit V. After adjustment for the change in cash and equiv- alents due to transactions involving debt or equity securi- ties, the remaining change in cash and equivalents could only be ascribed to transactions involving long-term assets. These transactions of course involved either the purchase or the sale (liquidation) of assets. Since the figure of concern was the change in cash and equivalents resulting from the liquidation of assets, it was necessary to adjust for the purchase of assets. Long-term assets were broken down in COMPUSTAT into categories of plant and equipment, investment and advances to subsidiaries, and intangibles. By far the largest category for almost all firms was plant and equipment. Fortunately, there was available in COMPUSTAT a figure for cash expenditures for plant and equipment (Capital Expenditures). The amount of cash used to purchase investments and intangibles unfortunately was not available. These figures could be reasonably d! 3O approximated, however, by using the net increase (if any) in the balances of theseitems. Thus, by adjusting the net change in cash and equiv- alents due to transactions involving long-term assets for cash Spent to purchase plant and equipment and for the changes in the balances of investments and intangibles, a reasonable approximation of cash provided by liquidation of assets was produced. CASH RECEIVED FROM ISSUANCE OF LONG—TERM DEBT Cash received from issuance of long-term debt was calculated from the change in the balance of long-term debt as is shown in Exhibit III. EXHIBIT III CALCULATION OF CASH RECEIVED FROM ISSUANCE OF LONG-TERM DEBT USING COMPUSTATZ4 Long-Term Debt — Ending Balance (9)* ............................... xxxx Less: Long-Term Debt - Beginning Balance (9) ..................... . xxxx Cash Received From Issuance of Long—Term Debt....... ..... ... ..... .. xxxx *Number in parenthesis refers to the number of the definition in the COMPUSTAT Manual and to the number of the definition in Appendix A. 24Strictly speaking, maneuverable cash should in- clude the amount of cash received from issuance of long-term debt rather than that amount less the cash paid to redeem debt which the netting process used in this calculation im- plies. However, sufficient information to allow a more pre- cise calculation was not available throu h COMPUSTAT.. Although it is probably safe to assume t at no Significant bias was introduced into maneuverable cash here since it is not likely that many of the firms used in the study en- countered refunding situations, it is comforting to know that any slight bias which might have resulted would have produced a more conservative figure for maneuverable cash and for the cash maneuverability ratio. of to dCC if N p d 038 31 CASH RECEIVED FROM ISSUANCE OF PREFERRED STOCK The calculation of cash received from the issuance of preferred stock is illustrated in Exhibit IV. In order to arrive at a reasonable approximation of this figure it was necessary to assume that the amount Of cash received was equal to the net increase in the balances of equity accounts reflecting preferred stock transactions. Thus, if preferred stock was both issued and repurchased, there was some unavoidable error produced as a result of the netting process. Since balances of preferred stock accounts were not directly available through COMPUSTAT it was necessary to calculate their total by the process of elimination. Since total assets is identically equal to the total Of liabilities and equity, the procedure was to subtract from total assets everything on the right-hand side of the balance sheet except for preferred stock accounts. Thus, total assets less the balances of current liabilities, long-term debt, deferred taxes, and common equity were equal to the total of the balances of preferred stock accounts. The net increase (decrease) in this total during any period was assumed to reflect the amount of cash received (paid) as a result of transactions involving preferred stock. Pr Le C: QM 32 EXHIBIT IV CALCULATION OF CASH RECEIVED FROM ISSUANCE OF PREFERRED STOCK USING COMPUSTAT Preferred Stock - Ending Balance: Total Assets - Ending (6)*. ..... .... . ........ xxxx Less: Current Liabilities - Ending (5) .......... xxxx Long-Term Debt - Ending (9). ............ xxxx Deferred Taxes - Ending (35).. ............ xxxx Common Equity - Ending (11).. ............ . xxxx xxxx Total................. ..... . ....... .. ................. . ...... xxxx Less: Preferred Stock - Beginning Balance: Total Assets - Beginning (6) ........................... xxxx Less: Current Liabilities - Beginning (5) ....... xxxx Long-Term Debt - Beginning (9) ............ xxxx Deferred Taxes - Beginning (35) ........... xxxx Common Equity - Beginning (ll)... ......... xxxx xxxx Total.................................... ....... ............. xxxx Cash Received From Issuance of Preferred Stock... ..... ............. xxxx *Number in parenthesis refers to the number of the definition in the COMPUSTAT Manual and to the number of the definition in Appendix A. CASH RECEIVED FROM ISSUANCE OF COMMON STOCK The amount of cash provided by issuance of common stock was approximated by adjusting the net change in com- mon equity for changes resulting from effects of net in— come and dividends declared. This is illustrated in Exhibit V. The manner of calculating the elements Of maneuver- able cash has now been presented. The sum of the totals f significance. ' In order to provide a more thorough analysis of 34 35 the data gathered, two other sets of hypotheses were tested. Set II tested for a negative correlation at a .05 level of significance. Set III was designed for a two-tailed test of either positive or negative correlation at the .05 level. Hypotheses Set II: H0: The cash maneuverability ratio and the rate Of return to stockholders are mutually inde- pendent, i.e., they are not dependent. There is a tendency for the smaller values of the cash maneuverability ratio to be paired with the larger values of the rate of return to stockholders. Hypotheses Set III: H0: The cash maneuverability ratio and the rate of return to stockholders are mutually inde- pendent, i.e., they are not dependent. Either (a) there is a tendency for the larger values of the cash maneuverability ratio to be paired with the larger values of the rate of return to stockholders, or (b) there is a tendency for the smaller values of the cash maneuverability ratio to be paired with the larger values of the rate of return to stock- holders. Isi‘ HQ 36 TESTS OF CORRELATION USING ALL FIRMS FOR WHICH THERE WERE AVAILABLE DATA The first thirty-six correlations were performed in an effort to determine the relationship between the CMR and the Rit for all 158 firms for which data were available from COMPUSTAT during the 36 lagged periods shown in Table I in Chapter 1. Table II-A shows the coefficients of correlation and whether or not each of the three null hypotheses is to be accepted or rejected for each of the 36 tests. For this over-all test, positive correlation was found in only two of the thirty-six sub—periods. Table II—B gives an analysis of numbers and percentages of tests in which sig- nificant correlation was found. It is evident that posi— tive correlation was not found in enough tests to be considered significant. Surprisingly enough, there does appear to be significant negative correlation within three, four, and five-year sub-periods, with the greatest signifi- cance within the four-year sub-periods. It would appear that correlations made with Rit's calculated for sub— periods centered about 1966 tended to be insignificant while others appear significant. 37 TABLE II—A TESTS 1-36 CORRELATION OF 158 OBSERVATIONS OF CMR WITH 158 OBSERVATIONS OF RIT DURING 36 LAGGED PERIODS H0 Set I H0 Set II ”0 Set 111 Lagged Coefficient CP = .1237* C? = .1237* CP =‘nggflfi Period of Corre- Re- Re- Re- Tested lation (rs) jected Accepted jected Accepted jected Accepted 1 -.122925 x x x 2 -.ll4998 x x x 3 -.033928 x x x 4 .026133 x x x 5 .069562 x x x 6 .023982 x x x 7 .040619 x x x 8 -.113252 x x x 9 -.251846 x x x 10 -.173660 x x x 11 .006649 x x x 12 .200619 x x x 13 -.166506 x x x 14 -.O915l7 x x x 15 -.188872 x x x 16 .062193 x x x 17 .147677 x x x 18 .028455 x x x 19 -.O34162 x x x 20 -.186368 x x x 21 -.202545 x x x 22 -.023894 x x x 23 -.l60325 x x x 24 -.281184 x x x 25 -.146022 x x x 26 .120380 x x x 27 .053972 x x x 28 -.OO877O x x x 29 -.088665 x x x 30 -.187479 x x x 31 -.366057 x x x 32 -.227707 x x x 33 -.O78677 x x x 34 .055913 x x x 35 .033755 x x x 36 —.O42821 x x x * n=lS8, a=.05 Var (rs) = 5% = 1/(n-1) = 1/157 Standard ErroI of r8 = srs = l/Vn-l = l/12.53 Critical Points:24 rS = i1.65 srs $.1237 for one-tail tests rS = il.96 srs i.1564 for two-tail tests 38 TABLE II-B ANALYSIS OF RESULTS OF CORRELATION OF 158 OBSERVATIONS OF CMR WITH 158 OBSERVATIONS OF RIT DURING 36 LAGGED PERIODS Total Two—Year Three-Year Four—Year Five-Year Sub-Periods Sub-Periods Sub-Periods Sub-Periods Sub-Periods With With With With With Significant Significant Significant Significant Significant Correlation Correlation Correlation Correlation Correlation Total 2 Total Z Total 2 Total Z Total Z Positive 2 5.56 l 8.33 l 10.00 0 0.00 0 0.00 Negative 12 33.33 2 16.67 4 40.00 4 50.00 2 33.33 Either 12 33.33 3 25.00 4 40.00 3 37.50 2 33.33 TESTS OF CORRELATION USING ONLY FIRMS HAVING RIT'S IN THE TAILS OF THE DISTRIBUTION The second thirty-six correlations were calculated in an attempt to find evidence of whether or not there was more correlation to be found for firms which had Rit's within the upper or lower 10th percentile tails of the distribution of all Rit's. It seemed plausible that, although perhaps on the basis of the entire distribution little correlation might be found, there might be more correlation found among the observations in the tails of the distribution since it should be easier to discriminate among extremes. The coefficients of correlation and their signifi— cance are shown in Table III-A. There is an increase 39 TABLE III-A TESTS 37—72 CORRELATION OF CMR'S AND RIT'S OBSERVED FOR FIRMS FOR WHICH RIT'S WERE OBSERVED IN EITHER THE UPPER 10th PERCENTILE OR THE LOWER 10th PERCENTILE OF THE DISTRIBUTION OF ALL RIT'S FOR ALL FIRMS H0 Set I H0 Set II H0 Set III Lagged Coefficient CP = .2962* CP = .2962* CP = .3519* Period of Corre- Re- Re- Re- Tested lation gjected Accepted giected Accepted jected_;Accepted 1 .295455 x x x 2 .245235 x x x 3 .200880 x x x 4 —.093109 x x x 5 -.493035 x x x 6 -.196848 x x x 7 -.057918 x x x 8 .151760 x x x 9 .372434 x x x 10 -.038123 x x x 11 .195381 x x x 12 —.152493 x x x 13 .315982 x x x 14 .203812 x x x 15 .560484 x x 16 -.329l79 x x x 17 -.512463 x x x 18 -.136730 x x x 19 -.115836 x x x 20 .221408 x x x 21 .198680 x x x 22 -.045821 x x x 23 .258431 x x x 24 .561950 x x x 25 .413490 x x x 26 -.508798 x x x 27 -.328446 x x x 28 -.270528 x x x 29 -.150293 x x x 30 .144062 x x x 31 .594575 x x x 32 .480205 x x x 33 .155059 x x x 34 -.365103 x x x 35 -.141129 x x x 36 -.387463 x x x TIT: 32, a = 205 / Var r = s = l n-l) = 1 31 Standagg Err6§ or i: = srs = 1//H:I = 1/5.57 .2962 for one-tail tests .3519 for two-tail tests Critical Points:24 rS = £1.65 srs = rs = £1.96 Srs = l+ H- 4O evident in the number of sub-periods with positive corre— lation, a decrease in the number of sub-periods with nega— tive correlation. and an increase in the number of sub- periods with significant positive or negative correlation using a two—tailtest. TABLE III-B Table III-B summarizes the findings. ANALYSIS OF RESULTS OF CORRELATION OF CMR'S AND RIT'S OBSERVED FOR FIRMS FOR WHICH RIT'S WERE OBSERVED IN EITHER THE UPPER 10th PERCENTILE OR THE LOWER 10th PERCENTILE OF THE DISTRIBUTION OF ALL RIT'S FOR ALL FIRMS Total Two-Year Three-Year Four-Year Five-Year Sub—Periods Sub—Periods Sub-Periods Sub-Periods Sub—Periods With With With With With Significant Significant Significant Significant Significant Correlation Correlation Correlation Correlation Correlation Total Z Total 2 Total Z Total Z Total Z Positive 7 19.44 1 8.33 2 20.00 2 25.00 2 33.33 Negative 7 19.44 1 8.33 2 20.00 2 25.00 2 33.33 Either 11 30.56 2 16.67 2 20.00 3 37.50 4 66.67 The five-year sub-periods show the greatest corre- lation. Except for the five—year sub—periods, correla- tions made with Ri t '3 calculated for the earlier sub- periods appear to be more often significant than those calculated for the later sub-periods. Correlations 73—108 were conducted on the mid— range values of the Rit distribution after these 10th percentile tails were removed. III-D show the results. Table III-C and Table 41 TABLE III-C TESTS 73-108 CORRELATION OF CMR'S AND RIT'S OBSERVED FOR FIRMS FOR WHICH RLTWS WERE OBSERVED BETWEEN THE LOWER 10th PERCENTILE AND THE UPPER 10th PERCENTILE OF THE DISTRIBUTION OF ALL RIT'S FOR ALL FIRMS H0 Set I H0 Set II HO Set III Lagged Coefficient CP = .1476* CP = .1476* CP = .1753* Period of Re- Re- Re- Tested Correlation jected Accepted #jected Accepted Alected Accepted 1 .080354 x x x 2 .041338 x x x 3 -.098139 x x x 4 .083123 x x x 5 .077951 x x x 6 .088798 x x x 7 -.016951 x x x 8 .120210 x x x 9 .144765 x x x 10 .245720 x x x 11 -.002259 x x x 12 -.243429 x x x 13 .112144 x x x 14 -.005672 x x x 15 -.O45783 x x x 16 .054068 x x x 17 .036034 x x x 18 .009434 x x x 19 .132754 x x x 20 .180364 x x x 21 .158413 x x x 22 .084682 x x x 23 .137260 x x x 24 .032063 x x x 25 .051399 x x x 26 .056408 x x x 27 .061927 x x x 28 .101090 x x x 29 .209635 x x x 30 .161977 x x x 31 .235966 x x x 32 .106718 x x x 33 .037228 x x x 34 .037030 x x x 35 .093501 x x x 36 .267192 x x x o— _—-.-...>.-»-.—-.—— — * n = 126, a = .05 Var (rs) = Sr = l/(n-l) = 1/125 ‘ 3 Standard Error of rs = srs = l/Vn-l = l/11.18 Critical Points:24 rS = £1.65 srs = 1.1476 for one-tail tests i r8 = £1.96 srs = .1753 for two-tail tests ‘42 TABLE III-D ANALYSIS OF RESULTS OF CORRELATION OF CMR'S AND RIT'S OBSERVED FOR FIRMS FOR WHICH RIT'S WERE OBSERVED BETWEEN THE LOWER 10th PERCENTILE AND THE UPPER 10th PERCENTILE OF THE DISTRIBUTION OF ALL RIT'S FOR ALL FIRMS Total Two-Year Three-Year Four-Year Five—Year Sub—Periods Sub—Periods Sub-Periods Sub-Periods Sub-Periods With With With With With Significant Significant Significant Significant Significant Correlation Correlation Correlation Correlation Correlgtigg. Total 2 Total Z Total 2 Total 2 Total Z Positive 7 19.44 1 8.33 2 20.00 2 25.00 2 33.33 Negative 1 2.80 l 8.33 0 0.00 0 0.00 0 0.00 Either 6 16.67 2 16.67 1 10.00 1 12.50 2 33.33 From the results of these tests it would appear that there was indeed more correlation to be found among the Rit's in the tails of the Rit distribution with their paired CMR's than among those Rit's in the mid-range of the Rit distribution with their respective CMR's. The results of correlations within three more tails and their respective mid-ranges are shown in Tables IV-A through IV-‘D' VI-D. Tables V-A through V—D, and Tables VI-A through In all cases there was found to be stronger corre- lation in the tails. 43 TABLE IV-B ANALYSIS OF RESULTS OF CORRELATION OF CMR'S AND RIT'S OBSERVED FOR FIRMS FOR WHICH RIT'S WERE OBSERVED IN EITHER THE UPPER 15th PERCENTILE OR THE LOWER 15th PERCENTILE OF THE DISTRIBUTION OF ALL RIT'S FOR ALL FIRMS Total Two-Year Three-Year Four—Year Five—Year Sub-Periods Sub—Periods Sub-Periods Sub—Periods Sub-Periods With With With With With Significant Significant Significant Significant Significant Correlation Correlation Correlation Correlation ggrrelation Total Z Total Z Total Z Total Z Total Z Positive 8 22.22 2 16.67 2 20.00 2 25.00 2 33.33 Negative 6 16.67 1 8.33 2 20.00 1 12.50 2 33.33 Either 12 33.33 3 25.00 3 30.00 3 37.50 3 50.00 TABLE IV—D ANALYSIS OF RESULTS OF CORRELATION OF CMR'S AND RIT'S OBSERVED FOR FIRMS FOR WHICH RIT'S WERE OBSERVED BETWEEN THE LOWER 15th PERCENTILE AND THE UPPER 15th PERCENTILE OF THE DISTRIBUTION OF ALL RIT'S FOR ALL FIRMS Total Sub-Periods With Significant Correlation Total Z Two-Year Sub-Periods With Significant Correlation Total Z Three-Year Sub-Periods With Significant Correlation Total Z Four—Year Sub—Periods With Significant Correlation Total Z Five-Year Sub-Periods With Significant Correlation Total Z Positive 5 Negative 1 Either 6 13.89 2.80 16.67 1 8.33 l 8.33 2 16.67 1 10.00 0 0.00 l 10.00 1 12.50 0 0.00 1 12.50 2 33.33 0 0.00 2 33.33 44 TABLE IV-A TESTS 109-144 CORRELATION OF CMR'S AND RIT'S OBSERVED FOR FIRMS FOR WHICH RIT'S WERE OBSERVED IN EITHER THE UPPER 15th PERCENTILE OR THE LOWER 15th PERCENTILE OF THE DISTRIBUTION OF ALL RIT'S FOR ALL FIRMS H0 Set I H0 Set II H0 Set III Lagged Coefficient CP = .2405* CP = .2405* CP = .2857* Period of Re- Re- Re- Tested Correlation jected Accepted pjected Accepted gjected_ Accepted 1 .290599 x x x 2 .224490 x x x 3 .207555 x x x 4 -.150130 x x x 5 -.352909 x x x 6 -.178354 x x x 7 -.093465 x x x 8 .126031 x x x 9 .390903 x x x 10 .003691 x x x 11 .032132 x x x 12 -.l39709 x x x 13 .275076 x x x 14 .203647 x x x 15 .504559 x x x 16 -.292553 x x x 17 -.415653 x x x 18 -.079679 x x x 19 -.102584 x x x 20 .233608 x x x 21 .218302 x x x 22 -.045158 x x x 23 .233174 x x x 24 .583152 x x x 25 .356600 x x x 26 -.414785 x x x 27 -.220582 x x x 28 -.l60660 x x x 29 -.097156 x x x 30 .185519 x x x 31 .588363 x x x 32 .476227 x x x .33 .174121 x x x 34 —. 269431 x x x 35 -. 153821 at x x _§6 -. 285823 x x x * n = 48, a = .05 Vair (rs) = sis = l/(n—l) = 1/47 Standard Error of rs =- srs = MEL—l— = 1/6.86 Crtitical Pointszz4 rS 8 i 1.65 srs = t .2405 for one—tail tests 1.3 = i 1.96 srs = i .2857 for two-tail tests 45 TABLE IV-C TESTS 145-180 CORRELATION OF CMR'S AND RIT'S OBSERVED FOR FIRMS FOR WHICH RIT'S WERE OBSERVED BETWEEN THE LOWER 15th PERCENTILE AND THE UPPER 15th PERCENTILE OF THE DISTRIBUTION OF ALL RIT'S FOR ALL FIRMS Ho Set I H0 Set II H0 Set III Lagged Coefficient CP 3 .1580* CP = .1580* CP = .1877* Period of Re- Re- Re- Tested Correlation piected Accepted jected Accepted piected Aptepted 1 -.035688 x x x 2 .010896 x x x 3 -.l48227 x x x 4 .099610 x x x 5 .141366 x x x 6 .078331 x x x 7 .023583 x x x 8 .139481 x x x 9 .130627 x x x 10 .252025 x X x 11 .086852 x x x 12 -.264712 x x x 13 .074991 x x x 14 -.024061 x x x 15 -.149832 x x x 16 .118806 x x x 17 -.009932 x x x 18 -.046575 x x x 19 .089457 x x x 20 .064076 x x x 21 .240475 x x x 22 .062606 x x x 23 .110277 x x x 24 .024079 x x x 25 -.O92090 x x x 26 .042319 x x x 27 .024854 x x x 28 .122981 x x x 29 .203444 x x x 30 .149372 x x x 31 .214273 x x x 32 -.049163 x x x 33 -.038947 x x x 34 .046854 x x x 35 .090873 x x x 36 .246002 x x x * n - 110, a = .05 Var (rs) = Srs = l/(n-l) = 1/109 Standard Error of rS - srs = l/Vn-l = l/10.44 Critical Points:24 rs = i 1.65 srs = i .1580 for one—tail tests at rS = i 1.96 sr = .1877 for two-tail tests 3 46 TABLE V-A TESTS 181-216 CORRELATION OF CMR'S AND RIT'S OBSERVED FOR FIRMS FOR WHICH RIT'S WERE OBSERVED IN EITHER THE UPPER 20th PERCENTILE OR THE LOWER 20th PERCENTILE OF THE DISTRIBUTION OF ALL RIT'S FOR ALL FIRMS HO Set I H0 Set II H0 Set III Lagged Coefficient CP = .2079* CP = .2079* CP = .2468* Period of Re- Re- Re- Tested Correlation jected Accepted Ajected Accepted _1ected Accepted 1 .257051 x x x 2 .210623 x x x 3 .193407 x x x 4 -.126832 x x x 5 -.291026 x x x 6 -.l40934 x x x 7 -.074725 x x x 8 .120696 x x x 9 .361584 x x x 10 .071520 x x 11 -.021383 x x x 12 -.150366 x x x 13 .240201 x x x 14 .187088 x x x 15 .456044 x x x 16 -.240705 x x x 17 -.355723 x x x 18 -.039103 x x x 19 -.039011 x x x 20 .262408 x x x 21 .199725 x x x 22 -.029853 x x x 23 .226190 x x x 24 .519002 x x x 25 .346062 x x x 26 -.348855 x x x 27 -.l71520 x x X 28 -.108700 x x x 29 -.028892 x x x 30 .214835 x x X 31 .523306 x x x 32 .444551 x x x 33 .174954 x x x 34 -.187729 x x X 35 -.l46658 x x x 36 —.189881 x x X * n = 64, a - .05 Var (rs) = srs = l/(n-l) = 1/63 Standard Error of rS a srs = ll/H:I = 1/7.94 Critical Points:24 rs = t 1.65 31.8 = .2079 for one-tail tests + i rs = 1.96 sr = i .2468 for two-tail tests 5 47 TABLE V-B ANALYSIS OF RESULTS OF CORRELATION OF CMR'S AND RIT'S OBSERVED FOR FIRMS FOR WHICH RIT'S WERE OBSERVED IN EITHER THE UPPER 20th PERCENTILE OR THE LOWER 20th PERCENTILE OF THE DISTRIBUTION OF ALL RIT'S FOR ALL FIRMS Total Sub-Periods With Significant Correlation Total Z Two-Year Sub-Periods With Significant Correlation Total Z Three-Year Sub-Periods With Significant Correlation Total Z Four-Year Sub-Periods With Significant Correlation Total Z Five-Year Sub—Periods With Significant Correlation Total Z Positive Negative Either 12 33.33 4 11.11 11 30.56 3 25.00 1 8.33 3 25.00 3 30.00 2 20.00 3 30.00 4 50.00 1 12.50 3 37.50 2 33.33 0 0.00 2 33.33 TABLE V-D ANALYSIS OF RESULTS OF CORRELATION OF CMR'S AND RIT'S OBSERVED FOR FIRMS FOR WHICH RIT'S WERE OBSERVED BETWEEN THE LOWER 20th PERCENTILE AND THE UPPER 20th PERCENTILE OF THE DISTRIBUTION OF ALL RIT'S FOR ALL FIRMS Total Sub-Periods With Significant Correlation Two—Year Sub-Periods With Significant Correlation Three-Year Sub-Periods With Significant Correlation Four-Year Sub-Periods With Significant Correlation Five-Year Sub-Periods With Significant Correlation Total Z Total Z Total Z Total Z Total Z Positive Negative Either 3 8.33 l 2.80 4 11.11 1 8.33 1 8.33 2 16.67 1 10.00 0 0.00 1 10.00 1 16.67 0 0.00 l 16.67 48 TABLE V-C TESTS 217-252 CORRELATION OF CMR'S AND RIT'S OBSERVED FOR FIRMS FOR WHICH RIT'S WERE OBSERVED BETWEEN THE LOWER 20th PERCENTILE AND THE UPPER 20th PERCENTILE OF THE DISTRIBUTION OF ALL RIT'S FOR.ALL FIRMS H0 Set I H0 Set II H0 Set III Lagged Coefficient CP = .1712* CP = .1712* CP = .2034* Period of Re- Re- Re— Tested Correlation jected Accepted ejected Accepted ejected Accepted 1 .020749 x x x 2 -.012910 x x x 3 -.136828 x x x 4 .036954 x x x 5 .128750 x x x 6 .034440 x x x 7 -.054741 x x x 8 .098205 x x x 9 .078351 x x x 10 .250370 x x x 11 .134949 x x x 12 —.276943 x x x 13 .148193 x x x 14 .008214 x x x 15 -.l48069 x x x 16 .082296 x x x 17 .111411 x x x 18 -.018184 x x x 19 .043268 x x x 20 -.047589 x x x 21 .262522 x x x 22 .103580 x x x 23 .064090 x x x 24 .046505 x x X 25 —.132016 x x x 26 .121786 x x x 27 .018069 x x x 28 .123823 x x x 29 .147159 x x x 30 .086486 x x x 31 .145049 x x x 32 -.123997 x x x 33 -.085330 x x X 34 -.052371 x x x 35 .128953 x x X 36 .224044 x x x * n 8 94, a - .05 Var (rs) - srs = l/(n-l) = 1/93 Standard Error of rS 8 Sta - 1/Jn-l - l/9.64 Critical Points:24 rs -i:l.65 srs =:t.l712 for one—tail tests rS l3121.96 srs =i:.2034 for two—tail tests ‘49 TABLE VI-A TESTS 253-288 CORRELATION OF CMR'S AND RIT'S OBSERVED FOR FIRMS FOR WHICH RIT'S WERE OBSERVED IN EITHER THE UPPER 25th PERCENTILE OR THE LOWER 25th PERCENTILE OF THE DISTRIBUTION OF ALL RIT'S FOR ALL FIRMS H0 Set I H0 Set II H0 Set III Lagged Coefficient CP = .1856* CP = .1856* CP = .2205* Period of Re- Re- Re- Tested Correlation ejected Accepted jected Accepted _1ected Accepted 1 .204116 x x x 2 .189639 ' x x x 3 .137412 x x x 4 -.103le x x x 5 -.211932 x x x 6 -.O96296 x x x 7 -.039498 x x x 8 .125973 x x x 9 .336310 x x x 10 .107454 x x x 11 —.030755 x x x 12 -.163760 x x x 13 .213479 x x x 14 .153704 x x x 15 .405438 x x x 16 -.180872 x x x 17 -.315612 x x x 18 -.050727 x x x 19 -.016010 x x x 20 .271191 x x x 21 .199391 x x x 22 -.026113 x x x 23 .207689 x x x 24 .446906 x x x 25 .310877 x x x 26 -.274379 x x x 27 -.l41772 x x x 28 -.l75527 x x x 29 .012635 x x x 30 .223535 x x x 31 .482208 x x x 32 .375926 x x x 33 .145710 x x x 34 -.136732 x x x 35 -.115377 x x x 36 -.110525 x x x * n == 80, a = .05 Var (rs) =- srs = 1/(n-l) = l/79 Standard Error of rs = srs = l/v’n—l = 1/8.89 (Irritical Points:24 rS - i 1.65srs - i .1856 for one-tail tests i i rs = 1.96 srs = .2205 for two-tail tests 50 TABLE VI-C TESTS 289-324 CORRELATION OF CMR'S AND RIT'S OBSERVED FOR FIRMS FOR WHICH RIT'S WERE OBSERVED BETWEEN THE LOWER 25th PERCENTILE AND THE UPPER 25th PERCENTILE OF THE DISTRIBUTION OF ALL RIT'S FOR ALL FIRMS H Set I HO Set II H0 Set III Lagged Coefficient CP = .1881* CP = .1881* CP = .2235* Period of Re- Re— Re- Tested Correlation ejected Accepted jected Accepted ejected Accepted 1 .151532 x x x 2 .013493 x x x 3 -.012861 x x x 4 .083448 x x x 5 .067919 x x x 6 .031576 x x x 7 -.155654 x x x 8 .050418 x x x 9 .092755 x x x 10 .129200 x x x 11 .012077 X x x 12 -.195690 x x X 13 .168036 x x 14 .011065 x x 15 -.264786 x x x 16 .023255 x x x 17 .107753 x x x 18 .080565 x x x 19 .096650 x x x 20 .036280 x x x 21 .180010 x x x 22 .008283 x x x 23 .119109 x x x 24 -.028870 x x x 25 -.261953 x x x 26 .018703 x x 27 .106665 x x 28 .214558 x x x 29 .160435 x x x 30 .040074 x x x 31 .121132 x x x 32 -.042982 x x x 33 .033144 x x x 34 -.092275 x x x 35 .081071 x x x ___36 .330745 x x x * r1==78, a = .05 ‘Var (rs) = srs = l/(n—l) = 1/77 Standard Error of rs = Srs = 1//;:I 1/8-77 (Iritical Points:24 r8 = i 1.65 srs i .1881 for one—tail tests rs = i 1.96 srs = i .2235 for two—tail tests 51 TABLE VI-B ANALYSIS OF RESULTS OF CORRELATION OF CMR'S AND RIT'S OBSERVED FOR FIRMS FOR WHICH RIT'S WERE OBSERVED IN EITHER THE UPPER 25th PERCENTILE OR THE LOWER 25th PERCENTILE OF THE DISTRIBUTION OF ALL RIT'S FOR ALL FIRMS Total Two—Year Three-Year Four-Year Five-Year Sub-Periods Sub-Periods Sub—Periods Sub-Periods Sub-Periods With With With With With Significant Significant Significant Significant Significant Correlation Correlation Correlation Correlation Correlation Total Z Total Z Total Z Total Z Total Z Positive 13 36.11 3 25.00 4 40.00 4 50.00 2 33.33 Negative 3 8.33 l 8.33 1 10.00 1 12.50 0 0.00 Either 14 38.89 3 25.00 4 40.00 5 62.50 2 33.33 TABLE VI—D ANALYSIS OF RESULTS OF CORRELATION OF CMR'S AND RIT'S OBSERVED FOR FIRMS FOR WHICH RIT'S WERE OBSERVED BETWEEN THE LOWER 25th PERCENTILE AND THE UPPER 25th PERCENTILE OF THE DISTRIBUTION OF ALL RIT'S FOR ALL FIRMS Total Sub—Periods With Significant Correlation Total Z Two-Year Sub-Periods With Significant Correlation Total Z Three-Year Sub-Periods With Significant Correlation Total Z Four-Year Sub-Periods With Significant Correlation Total Z Five-Year Sub-Periods With Significant Correlation Total Z Positive Negative Either 2 5.56 3 8.33 4 11.11 Ol—‘O on L») w 0 0.00 1 10.00 1 10.00 1 12.50 1 12.50 2 25.00 1 16.67 0 0.00 1 16.67 52 Some rather interesting observations may be made from a comparison of these tables. First, it was a sur— prise to find as much significant negative correlation as was found. The results of the correlation analysis con- ducted on the entire distribution show that the frequency of significant negative correlation in those tests exceeded the frequency of significant positive correlation. Second, this significant negative correlation, although quite large for the entire distribution, de- creased consistently in the tails as the size of the tails increased from 10th percentile tails to 25th percentile tails. Third, although the frequency of significant positive correlation was found to be quite small in the tests conducted on the entire distribution, it increased by over 600% when the tests were conducted in the tails only, and the frequency of significant positive correla— tion increased as the size of the tails were increased from 10th percentile tails to 25th percentile tails. Fourth, the frequency of significant positive cor— relation exceeded the frequency of significant negative <:orrelation in the tails with only a few exceptions. In time 15th percentile tails using three—year and five-year sub-periods the frequency of significant negative 53 correlation was found to equal the frequency of significant positive correlation. In the 10th percentile tails within all sub-period classifications, the frequency of positive and negative correlation was also found to be equal. In no case, however, did the frequency of significant negative correlation exceed the frequency of significant positive correlation in the tails. Fifth, significant positive correlation was found to be greatest in the 25th percentile tail using four—year sub-periods. Sixth, significant negative correlation in the tails was found to be most frequent in the 10th percentile tail using five-year sub-periods, but the most frequent for the entire distribution was found using four-year sub- periods. Seventh, significant negative correlation com- pletely disappeared in the mid-range correlations after removing 10th, 15th, and 20th percentile tails with the exception of two-year sub-periods. Graphs of the CMR's and the Ri 's for each of the t thirty-six lagged sub—periods are shown in Appendix B. fflwo interesting observations may be made here. First, the distributions of both the CMR and the Rit are, without exception, always skewed to the right. Second, the CMR 54 shows more volatility in terms of its range from period to period than does the Rit‘ The range of the high and the low values for both the CMR and the Rit are summarized by length of sub-periods in Table VII. TABLE VII RANGES OF HIGH AND LOW VALUES FOR THE CMR AND THE RIT Sub-Period CMR RIT Length Low High Low High Two-Year —.11 to .12 .80 to 23.18 -.47 to -.16 .43 to 4.96 Three-Year -.08 to .19 1.18 to 25.15 -.31 to .20 .73 to 5.72 Four-Year —.07 to .22 1.47 to 28.62 —.22 to -.l6 -.19 to 5.51 Five-Year .13 to .27 14.89 to 30.31 -.18 to -.14 .87 to 3.75 TESTS OF CORRELATION USING ONLY FIRMS WITHIN SPECIFIC INDUSTRIES In an attempt to determine whether different indus- tries may inherently show different relationships between their CMR's and Rit's, correlation tests were performed within four different industries. These tests were con- ducted for the entire distribution of Ri 's of firms within t the particular industry. Tails were not isolated for test- ing inasmuch as the numbers of firms within an industry for which data were available were not sufficient to allow .for this type of testing. Tables VIII-A and VIII-B, Tables IX-A and IX-B, Tables X—A and X-B. 55 and Tables XI—A and XI-B show the results of correlation tests run on eighteen firms within the chemical industry, industry, sixteen firms within the electrical twenty-two firms within the automotive and air- craft industry, and ten firms within the machinery manu— facturing industry respectively. TABLE VIII—B ANALYSIS OF RESULTS OF CORRELATION WITHIN THE CHEMICAL INDUSTRY OF 18 OBSERVATIONS OF CMR WITH 18 OBSERVATIONS OF RIT DURING 36 LAGGED PERIODS Total Sub-Periods With Significant Correlation Total Z Two-Year Sub-Periods With Significant Correlation Total Z Three—Year Sub—Periods With Significant Correlation Total Z Four—Year Sub-Periods With Significant Correlation Total Z Five—Year Sub-Periods With Significant Correlation Total Z Positive Negative Either I 2.78 4 11.11 4 11.11 8.33 0.00 0.00 OOH 000 O O O 0 0.00 1 12.50 1 12.50 0 0.00 3 50.00 3 50.00 TABLE IX—B ANALYSIS OF RESULTS OF CORRELATION WITHIN THE ELECTRICAL INDUSTRY OF .\ PO 8 itive Ne gative Ei ther K 16 OBSERVATIONS OF CMR WITH 16 OBSERVATIONS OF Total Sub-Periods With Significant Correlation RIT DURING 36 LAGGED PERIODS Two-Year Sub—Periods With Significant Correlation Three—Year Sub-Periods With Significant Correlation Four-Year Sub-Periods With Significant Correlation Five-Year Sub-Periods With Significant Correlation Total Z 4 11.11 4 11.11 6 16.67 Total Z 8.33 0.00 8.33 h*C>P* Total Z 0 0.00 2 20.00 2 20.00 Total Z 2 25.00 2 25.00 2 25.00 Total Z 1 16.67 0 0.00 l 16.67 56 TABLE VIII-A TESTS 325-360 CORRELATION WITHIN THE CHEMICAL INDUSTRY OF 18 OBSERVATIONS OF CMR WITH 18 OBSERVATIONS OF RIT DURING 36 LAGGED PERIODS H0 Set 1 H0 Set II H0 Set 111 Lagged Coefficient CP = .399* GP = .399 GP = .476 Period of Re- Re- Re- Tested Correlation ejected Accepted ejected Accepted jected Accepted 1 .042312 x x x 2 .009288 X x x 3 .209494 x x x 4 -.019608 x x x 5 -.021672 x x x 6 .009288 x x x 7 -.100103 x x x 8 -.335397 X x x 9 -.256966 x x x 10 .428277 x x x 11 .331269 x x x 12 .112487 x x x 13 -.223942 x x x 14 -.254902 x x x 15 -.168215 x x x 16 -.081527 x x x 17 -.122870 x x x 18 .016520 x x x 19 -.069143 x x X 20 -.242518 x x x 21 -.l62023 x x x 22 .195046 X X X 23 -.114551 x x x 24 —.531476 X x x 25 -.279670 x x x 26 .312693 x x x 27 .075335 X X X .28 -.308566 x x x 29 -. 331269 x x x 30 -.164087 x X X 31 -.655315 x X X -32 -.457172 x x X 33 -.248710 x X X 34» .240454 x X X 3s -.007224 x x x 36 -.498452 x X ...—-..... Var (rs) = sgs = l/(n—l) = 1/17 Standard Error of rS = sr = 1/v’n-l 1/4.12 s Cr‘n‘tical Points:24 r8 = i .65 srs = i .399 for one tail tests i .476 for two tail tests P'h‘ \o O\ m H I H 57 TABLE IX-A TESTS 361-396 CORRELATION WITHIN THE ELECTRICAL INDUSTRY OF 16 OBSERVATIONS OF CMR WITH 16 OBSERVATIONS OF RIT DURING 36 LAGGED PERIODS H0 Set I H0 Set 11 H0 Set III Lagged Coefficient CP = .425* GP = .425 GP = .507 Period of Re- Re— Re— Tested Correlation ejected Accepted jected Accepted jected Accepted 1 -.164706 x x x 2 -.023529 x x x 3 -.364974 x x x 4 -.393226 x x x 5 .507726 x x x 6 -.l91317 x x x 7 .114706 x x x 8 -.259205 x x x 9 -.014706 X x x 10 -.038235 x x x 11 -.255882 x x x 12 -.373529 x x x 13 -.270588 x x x 14 .052941 x x x 15 .105882 x x x 16 -.232353 x x x 17 .114706 x x x 18 .029412 x x x 19 -.552941 x x x 20 -.7ll765 x x x 21 -.341176 x x x 22 .358824 x x x 23 -.297059 x x x 24 .373529 x x x 25 .429412 x x x 26 .561765 x x X 27 .176471 x x x 28 -.285294 x x x 29 -.432353 x x x 30 -.605882 x x x 31 .032353 x x x 32 .320588 x x x 33 .576471 X x x 34 .379412 x x x 35 .020588 x x x 36 -.341176 x x x * n = 16, a = .05 Var (rs) = 3% = l/(n-l) = 1/15 Standard Erro? of rS = srs ll/H:I = 1/3.87 Critical Points:24 rS = i l. i 1 65 Srs = i .425 for one tail tests rS = 9 i .507 for two tail tests 0‘ U) ll 58 TABLE X-A TESTS 397-432 CORRELATION WITHIN THE AUTOMOBILE AND AIRCRAFT INDUSTRIES OF 22 OBSERVATIONS OF CMR WITH 22 OBSERVATIONS OF RIT DURING 36 LAGGED PERIODS HO Set I H0 Set 11 H0 Set III Lagged Coefficient CP = .368* GP = .368 GP = .432 Period of Re Re— Re- Tested Correlation jected Accepted jected Aceepted _jected Accepted 1 -.000565 x x x 2 -.051383 x x x 3 -.070582 x x x 4 -.104461 x x x 5 -.020892 X x x 6 -.151892 x x x 7 .037832 x x x 8 .019763 x x x 9 .410503 x x x 10 .146245 x x X 11 .108978 x x x 12 -.018079 x x x 13 .398080 x x x 14 .369492 x x x 15 -.084157 X x X 16 .237719 x x x 17 -.178582 x x x 18 .166055 x x x 19 -.498588 x x x 20 -.378882 x x x 21 -.329l93 x x x 22 .057030 x x x 23 -.023151 x x x 24 .175607 x x x 25 —.28l762 x x x 26 -.071711 x x x 27 -.077357 x x x 28 -.396951 X x x 29 -.403727 x x x 30 -.395822 x x x 31 .024280 x x x 32 .007340 X x x 33 -.164314 x x X 34 -.171090 x x x 35 -.473744 x x x 36 -.3l7899 x x x * n = 22, a = .05 Var (rs) = s; = l/(n-l) = 1/21 5 Standard Error of rS = srs = 1/Vn-l = 1/4.58 Critical Points:24 rS = + 1.65 srs i .368 for one tail tests 1.96 srs i .432 for two tail tests l+| rs= 59 TABLE XI-A TESTS 433-468 CORRELATION WITHIN THE MACHINERY MANUFACTURING INDUSTRY OF 10 OBSERVATIONS OF CMR WITH 10 OBSERVATIONS OF RIT DURING 36 LAGGED PERIODS H0 Set I Ho Set II H0 Set III Lagged Coefficient CP = .643* CP = .643 CP = .738 Period of Re- Re- Re- Tested Correlation jected Accepted jected Accepted jected Accepted 1 .272727 x x x 2 -.030303 x x x 3 -.115152 x x x 4 ~.115152 x x x 5 .357576 x x X 6 .333333 x x x 7 .406061 x x x 8 .272727 x x x 9 -.030303 x x x 10 .369697 x x X 11 -.O90909 x x X 12 -.709091 x x X 13 -.321212 x x x 14 .430303 x x x 15 .042424 x x x 16 -.175758 x x X 17 .357576 x x x 18 -.139394 x x x 19 .309091 x x x 20 .224242 x x x 21 -.296970 x x x 22 -.672727 x x x 23 -.284848 x x x 24 -.769697 x x x 25 -.393939 x x x 26 .260606 x x x 27 .563636 x x x 28 .200000 x x x 29 .321212 x x x 30 -.309091 x x x 31 -.636364 x x x 32 -.745455 x x x 33 -.018182 x x x 34 .236364 x x x 35 .660606 x x x 36 .393939 x x x * n = 10, a = .05 Var (rs) = er = l/(n—l) = 1/9 5 Standard Error of rS = 51.8 = l/Vn-l 1/3 Critical Points:24 rS = i 1.65 srs = i .643 for one tail tests i .738 for two tail tests 0? I l+ g... lo 0‘ U) ll 60 TABLE X-B ANALYSIS OF RESULTS OF CORRELATION WITHIN THE AUTOMOBILE AND AIRCRAFT INDUSTRIES OF 22 OBSERVATIONS OF CMR WITH 22 OBSERVATIONS OF RIT DURING 36 LAGGED PERIODS Total Two-Year Three—Year Four-Year Five-Year Sub-Periods Sub-Periods Sub-Periods Sub-Periods Sub-Periods With With With With With Significant Significant Significant Significant Significant Correlation Correlation Correlation Correlation Correlation Total Z Total Z Total Z Total Z Total Z Positive 3 8.33 1 8.33 2 20.00 0 0.00 0 0.00 Negative 6 16.67 0 0.00 2 20.00 3 37.50 1 16.67 Either 2 5.56 0 0.00 l 10.00 0 0.00 l 16.67 TABLE XI—B ANALYSIS OF RESULTS OF CORRELATION WITHIN THE MACHINERY MANUFACTURING INDUSTRY OF 10 OBSERVATIONS OF CMR WITH 10 OBSERVATIONS OF RIT DURING 36 LAGGED PERIODS Total Sub-Periods With Significant Correlation Total Z Two-Year Sub-Periods With Significant Correlation Total Z Three—Year Sub~Periods With Significant Correlation Total Z Four-Year Sub-Periods With Significant Correlation Total Z Five-Year Sub-Periods With Significant Correlation Total Z Positive Negative Either 1 2.78 4 11.11 2 5.56 GHQ on L0 to 0 0.00 1 10.00 0 0.00 0 0.00 1 12.50 1 12.50 1 16.67 1 16.67 1 16.67 61 Again the tendency for significant negative corre- lation to be found in excess of significant positive cor- relation was quite strong for each industry. The chemical and machinery manufacturing industries showed the greatest frequency of negative correlation during the five-year sub- periods while the electrical and automotive and aircraft industries showed the greatest frequency of negative cor— relation during the four-year sub—periods. This compared well with the results of tests for all observations pre- sented earlier in Table I—B where such negative correlation was found most frequently during the longer sub—periods centered around the four-year sub—periods. The frequency of significant positive correlation was greater for the firms within the electrical industry, but apparently not great enough to be of any importance. CHAPTER 4 SUMMARY AND CONCLUSIONS SUMMARY AND CONCLUSIONS This study was undertaken in an attempt to empiri— cally test the ability of the cash maneuverability ratio to stand as a surrogate for the ability of a firm to adapt to changing conditions in its market. Chambers' concept of adaptability constrained by cash was logically extended from his stock measurement of cash in terms of current cash equivalents of assets to a flow measurement using maneuver- able cash generated by the firm. It seemed reasonable that in so doing, the ability of the firm to adapt using addi- tional debt and equity sources of cash could be accounted for as well as the ability of the firm to adapt using cash generated by management through actions to convert current cash equivalents into cash. Chambers' basic argument as to the importance of adaptability as constrained by cash was accepted 3 priori, as was the view of many finance writers that the objective of the firm should be to maximize shareholders' wealth. 62 63 The cash maneuverability ratio, taken as a surrogate for adaptability, and the rateof return to shareholders, taken as a relative measure of how well a particular firm had adapted, were then correlated. Four-hundred-sixty- eight of these rank correlation tests were undertaken over 36 lagged periods stretching over the fifteen-year period from January 1, 1956 to January 1, 1971, using 158 firms from various industries. The hypothesis of this study was that the cash maneuverability ratio could be satisfactorily used as a surrogate for adaptability. If this hypothesis were statistically supported it could only have been as a result of very strong evidence of significant positive correlation between the cash maneuverability ratio and the ratio of return to shareholders. Such evidence was not generally found when either the sample containing 158 firms was tested or when industry restricted sub-samples were tested. The most puzzling characteristic of the test results was that so much significant negative correlation existed when it seems intuitively logical that only sig— nificant positive correlation should have been present if any significant correlation were present. As was pointed Out in Chapter Three, when data for all 158 firms were 64 correlated the frequency of significant negative correla- tion actually exceeded that of significant positive corre- lation. It seems obvious that there are other influenCes upon the variables which are strong enough to over—shadow any significant positive correlation which might otherwise exist. A few such possible influences come readily to mind. First, it is possible that cyclical business trends have such a strong effect upon the variables, that the natural relationship between the variables is destroyed. The rate of return to shareholders could have been subject to fluctuation due to poor corporate profits and pessimism by potential and current shareholders. The cash maneuver- ability ratio may have been subject to pressures from fluctuations in the supply of money, interest rates, con- sumer Optimism, and management optimism. If, for example, the supply of money decreased and interest rates increased, the amount of money borrowed by firms would likely decrease. As consumers became more pessimistic and refused to buy, cash from Operations would decrease, and as manage— ment became more pessimistic about the future it would borrow less. All this would reduce maneuverable cash and the cash maneuverability ratio. The effect of having used two-year, three-year, four-year, and five-year periods in 65 the testing, however, should have been to lessen the im- pact of cyclical business trends. Perhaps the question is whether or not the use of these longer periods did the job. Certainly, for the shorter periods, which are more vunerable to cyclical effects, the lagging of the periods would have the poten- tial, around a peak in the business cycle, for increasing the negative correlation. If, for example, the cash maneuverability ratio was calculated during 1963-1964, a period of upswing in the business cycle, and then cor- related with a rate of return on shareholders' investment calculated during 1965-1966, a period of downswing, it would not be surprising to find negative correlation. Indeed, the fact that the greatest frequency of signifi- cant positive correlation was found during the longer four-year periods suggests that this perhaps is a prob- lem with the shorter period statistics. It should also be pointed out that the effect of the lagging of the periods could also be to increase the frequency of significant positive correlation when these periods surrounding a trough in business cycle. Second, during periods of inflation, the use of depreciated historical cost to measure assets would tend to introduce an automatic bias into the study. If 66 maneuverable cash is used to replace old assets measured at historical cost with new assets measured at higher, more recent costs, then the depreciation taken on the new assets would be greater than the depreciation taken on the old assets, reported profits would be less ceteris paribus, the return to shareholders would be less and consequently the relationship between the cash maneuver— ability ratio and the return on shareholders' investment would be adversely affected. .As a practical manner, it is difficult to imagine that the effect would be very great inasmuch as the management of most firms is con— scious of such things as the effect certain actions would have upon reported earnings per share and takes this into consideration when making decisions. There does come a time for all firms, however, when such decisions become necessary regardless of the effect upon earnings per share. The question, however, is not whether the use of historical cost during inflationary periods tends to re— duce a positive relationship between the cash maneuver- ability ratio and shareholders' rate of return, but rather it is whether that reduction is great enough to turn a significant positive correlation into a significant negative correlation. Although there was not enough evidence found from 67 the tests conducted to statistically support the hypothesis that the cash maneuverability ratio may be a valid surro— gate for adaptability, there was enough evidence to sug- gest on a non-statistical basis that the cash maneuver- ability ratio may be useful as such a surrogate under the prOper conditions. It is important to point out that the use of rank correlation may give misleading results under certain conditions. It is possible, for example, that when the test is applied to the entire distribution of variables it may give results just the Opposite Of those which would be Obtained if the same test is applied to each segment of the distribution on an individual basis.25 In Chapter Three four Observations were made. First, the frequency Of significant negative correlation decreased when only those variables Of firms with Rit's in the tails of the distribution of Ri 's for all firms t 25For example: A /\_.._J//\\l\‘~____/’\ x1. 1 2 3.4 5 6:7 8 9 I I I . Y.: 4 5 6' 7 8 9' 1 2 3 l I ...... pf... B C D In this case the coefficient of correlation (rs) Of the entire distribution (A) is negative (rsA --.35). But, if a coefficient is calculated for each third of the distribution separately, each is found to be perfectly positive (rsB = rsC = rsD = 1.0). 68 were correlated. Second, the frequency of significant positive correlation exceeded the frequency Of significant negative correlation in these tails with only a few excep; tions. Third, the frequency of significant positive cor— relation increased and the frequency Of significant nega— tive correlation decreased as the size of the tails were increased from 10th percentile tails to 25th percentile tails. Fourth, the presence Of significant negative cor- relation completely disappeared for sub-periods greater than two-years when the tests were conducted upon the mid— ranges established by removing either 10th, 15th, or 20th percentile tails. These Observations suggest that most of the problem with using the cash maneuverability ratio as a surrogate for adaptability may be due to two factors. First, the cash maneuverability ratio may be unable to discriminate among degrees Of adaptability when the differences in degrees are very small, as would likely be the case among Observations immediately surrounding the mean of the dis- tribution Of Rit's. Second, the cash maneuverability ratio may be unable to relate in a positive manner to extremes in adaptation which may have been caused by factors not under the control of management, such as vast speculation in the stock market by investors in the stock Of a 69 particular firm or the loss of a large government contract due to political factors, such as Boeing's loss of the SST contract. Such events would likely cause very large changes in the market value of the stocks Of the firms and thus would drastically effect the Rit as calculated in this research. The fact that when certain portions Of the distri- bution were isolated the frequency Of significant positive correlation greatly increased, would seem to indicate that much Of the significant negative correlation may be due to explainable characteristics Of the over—all distribution. Certainly, it seems unlikely that significant positive cor- relation could be found in the tails of the distribution to the extent it was found in this study, and be present only as the result of chance. With reference to Appendix B, two other observa— tions were made. First, the distributions Of cash maneu- verability ratios were always skewed to the right. Second, the range of high to low values of the cash maneuverability ratio was many times as volatile among sub—periods as that Of the rate Of return tO shareholders. The greatest part Of this volatility occurred at the high end Of the range.26 26See Table VI in Chapter Three. 70 This may indicate an extremely high and varying degree of speculation by the management of a few firms in issuing their own securities. If these extreme cases are a result of poor management and consequently connected with poor rates Of return, this might partially eXplain some Of the negative correlation which was found. Finally, it must be pointed out that it was not practical to use Observations Of data which were completely independent. Due to the limited number of years for which dataxmae available, it was necessary to use overlapping periods in order to generate enough Observations Of the cash maneuverability ratio and the rate Of return to share- holders during the longer sub-periods.27 This overlapping produced some unavoidable dependence in Observations. It is possible that one or two years of data with unusually strongly correlated Observations of the two variables have biased many Observations. This possibility is strongest during the longer four and five year sub-periods. The impression gained after working with the data is that a significant bias of this nature was not present, but the possibility remains. 27See Table I in Chapter One. 71 SUGGESTIONS FOR FURTHER RESEARCH There does appear to be enough significant positive correlation in the results of the tests completed in this study to suggest that additional research into the useful- ness of the cash maneuverability ratio as a surrogate for adaptability is warranted. Such research would likely attempt to accomplish some of the following: 1. Reduce the probability of significant effects Of general business trends upon the calcula- tions Of the variables; 2. Reduce the probability of significant effects resulting from the use of historical cost in the financial data from which variables are calculated; 3. Investigate further the hypothesis that with the exception Of the firms immediately sur- rounding the mean Of the distribution Of Rit's Of all firms and the firms at the extreme ends of the distribution, the cash maneuverability ratio as calculated in this study is a useful surrogate for adaptability; 4. Incorporate the cash maneuverability ratio as calculated for the purposes of this study into a larger model of adaptability including, 72 perhaps, such items as indices Of consumer and management Optimism, and industry and general business factors; Investigate means of reducing the dependence among Observations. APPENDIX A DEFINITION OF COMPUSTAT VARIABLES (EXCERPTS FROM COMPUSTAT MANUAL) 1 - CASH AND EQUIVALENT "Cash and Equivalent" includes all cash, government, marketable and other securities listed in the current asset section. 4 - TOTAL CURRENT ASSETS A. "Total Current Assets" represent cash and other assets which in the next 12 months are expected tO be realized in cash or used up in the produc- tion of revenue. U.S. Government securities, whether listed as current assets by the company or netted against tax liability in the current section on the liability side of the balance sheet are treated as current assets. 5 - TOTAL CURRENT LIABILITIES A. "Total Current Liabilities" represent liabilities due within one year, including the current portion of long-term debt. U.S. Government securities are not deducted from tax liability in current liabilities (treated as current asset). 6 - TOTAL ASSETS / LIABILITIES A. "Total Assets" represent current assets plus net plant plus other non-current assets (including intangible assets and deferred items). U.S. Government securities that have been netted by the company in its public reports against tax liability on the current liability side of the balance sheet are considered as current assets. 73 74 APPENDIX A--Continued 9 - LONG-TERM DEBT A. "Long-Term Debt" represents debt obligations due after one year. Purchase Obligations and payments to Officers (when listed as long—term liabilities) are included as long-term debt. Notes payable, due within one year and to be refunded by long-term debt, when carried as a con-current liability, are included in long—term debt. Subsidiary preferred stock is excluded (treated as minority interest). The current portion of long-term debt is excluded (treated as current liability). Long-term lease Obligations. Accounts payable due after one year is excluded (treated as other liability). 11 - COMMON EQUITY A. "Common Equity" represents common stock plus the following items: 1 - Retained earnings 2 - Capital surplus - Self-insurance reserves - Unamortized debt premium - Capital stock premium U190.) Deducted from common equity are the following itemS: l - Common treasury stock - Intangibles (see item #33) - Accumulated unpaid preferred dividends - Excess Of involuntary liquidating value Of outstanding preferred stock over carrying value. bum Deferred taxes and investment credit (Balance 75 APPENDIX A--Continued Sheet) are not included in this figure. D. Negative equity figures are shown where applicable. 13 - OPERATING INCOME BEFORE DEPRECIATION "Operating Income" represents net sales less cost Of sales and Operating expenses before deducting _ depreciation, amortization and depletion. ‘ l4 - DEPRECIATION AND AMORTIZATION l. "Depreciation and Amortization" represent non- cash charges for obsolescence and wear and tear on prOperty, allocation of the current portion of capitalized expenditures, and depletion charges. \"Ef'f‘ 4134.; ~,—_ 2. For Oil, gas and mining companies, it also includes dry holes, retirements, abandonments, and other intangible drilling costs. 3. Amortization Of patents. trademarks and other intangibles is included. 4. Amortization of books plates is included (if amortized for more than two years). 5. For airline companies, amortization of deferred costs is included. 15 - FIXED CHARGES A. "Fixed Charges" represent all interest expense, the amortization of debt discount or premium and the amortization of expense (i.e., under- writing, brokerage fees, advertising costs, etc.). 16 - INCOME TAXES 1. "Income Taxes" represent federal, state, other and deferred income taxes, including charges in lieu of income taxes, a charge equivalent to the investment tax credit, and income taxes on 76 APPENDIX A--COntinued dividends from non-consolidated subsidiaries when separately stated. 2. Prior years' tax adjustments, when stated separately and reported on a recurring basis, are excluded from both taxes and non-recurring eXpense and are treated as other income or other deductions. 3. Tax carry-backs and carry-forwards are excluded from income account (treated as non-recurring income or expense - net Of taxes). 4. Income taxes (both debit and credit) are excluded on extraordinary items that have been stated by the company in its public reports as net Of taxes. 5. When prior years' income taxes are shown after net income, they have been excluded from the income account and shown as extraordinary items. 18 - NET INCOME "Net Income" represents income after all Operating and non-Operating income and expense and minority interest, but before preferred and common dividends. It is stated after extraordinary items which are not net Of applicable taxes. However, net income is before all extraordinary items that are listed in the company's public reports as being net of taxes. In addition, net income is stated before apprOpriations for general contingencies. These items are treated as surplus adjustments. l9 - PREFERRED DIVIDENDS A. "Preferred Dividends" represent the preferred dividend requirement on the preferred stocks of the company during the year. B. Preferred dividend requirements of a merged com- pany which is treated on a pooling of interests basis are included for the year Of the merger, except dividends on preferred stock Of merged companies which was exchanged for common stock C. 77 APPENDIX A--Continued Of the companies (treated as minority~interest). Subsidiary preferred dividends are excluded (treated as minority interest). 0 21 - COMMON DIVIDENDS A. "Common Dividends" represent the dividends (other than stock dividends) declared on the common stock Of the company during the year. Dividends declared by a company which is merged on a pooling Of interests basis are included for the year of the merger, including dividends on preferred stock Of a merged company which was exchanged for common stock. Dividends declared in stock of other corporations, excluding spin-Offs, are included. Consolidated subsidiary dividends are excluded (treated as a minority interest). Cash paid in lieu Of fractional shares are included. PRICE - HIGHL LOW AND CLOSE "Price - High, Low and Close" represents the absolute high, low and close transactions during the year for companies on national stock exchanges and bid prices for over-the-counter issues. Prices are reported on a calendar-year basis, regardless of the company's fiscal year-end. Prices in COMPUSTAT are adjusted for all stock splits and stock dividends are occurred in the calendar year, except for fiscal year companies which have declared dividends and stock splits between the end Of the fiscal year and the end of the calendar year. In those instances, the stated prices are not adjusted. This enables the user to adjust prices, shares traded and per share statistics with a single adjustment 78 APPENDIX A--Continued factor, as with calendar year companies. (2529. $2.7.) 26 - DIVIDENDS PER SHARE 1. "Dividends Per Share" represents the cash dividend per share paid during the reporting year, adjusted for all stock splits and stock dividends that occurred during the year. This field, unlike the common dividends field, excludes payments in preferred stock in lieu or cash, spin-offs, and stock of other corporations. The method of adjusting dividends per share for stock splits and stock dividends that occurred subsequent to the reporting year is explained in the adjustment factor section of this manual. (see £21) 27 - ADJUSTMENT FACTOR l. The "Adjustment Factor" is an annual number which enables the user to adjust reported per share data, such as price, earnings per share, dividends per share, etc., for all stock splits and stock dividends that occurred subsequent to the end of the year in which the original data was reported. These factors, applied to per share data into terms of the current share units. The adjustment factors for all years will be changed whenever a stock split or stock dividend occurs. The factors are carried to six decimal places in order that rounding errors will be minimized. To enable the user adjust per share statistics, price and shares traded with a single adjustment factor as with calendar year companies, the prices and the shares traded for fiscal year companies are not adjusted on the tape for stock splits and dividends that took place between the end Of the fiscal year and the end of the calendar year. 79 APPENDIX A--Continued 30 - CAPITAL EXPENDITURES "Capital Expenditures" represents the amount spent for the construction or acquisition of facilities and equipment. Capital expenditures of merged companies are included. However, fixed assets acquired through merger, acquisition, or pooling of interest are pet included. 31 - INVESTMENTS IN AND ADVANCES TO SUBSIDIARIES “Investments in and Advances to Subsidiaries" includes long-term investments in and advances to unconsolidated subsidiaries and affiliated companies as stated in the consolidated financial statements. 33 - INTANGIBLES "Intangibles" include goodwill, patents, trade-names, trademarks, COpyrights, convenants, leases, licenses, franchises, subscription lists, easements, organiza- tion expense, excess Of cost Of acquisition, and any other asset of an intangible nature. 35 - DEFERRED TAXES AND INVESTMENT CREDIT (BALANCE SHEET) A. "Deferred Taxes and Investment Credit" represents the accumulated tax deferrals due to accelerated depreciation and amortization, 1962 guideline rules, and investment credit. B. All other deferred taxes, except deferred tax due to installment sales for retail companies (treated as current liability) are included. 48 - NON-RECURRING INCOME OR EXPENSES - NET OF TAX "Non-Recurring Income or Expenses - Net of Tax" repre- sents all extraordinary items and prior years' adjust- ments that have been stated by the company in its public reports as net of taxes....Non-recurring expense is stated as a positive number and non- recurring income is stated as a negative number. 80 APPENDIX B GRAPHS OF CMR'S AND RIT'S 7 5 9 1 H m. C 5 .. 5 9 1 L n S m I I R a m S m m 6 3 m. m F 8529630741852963 4443333222111 NUZMDOMMM oooomm. oeonme. omwaw. HNmwa. Homowh. Houmun. Hawmno. umammm. NNHme. Nehwam. moaome. maoqae. mwofiom. mwmmom. «omomN. aooqu. «auuma. RIT 1957 - 1959 % «mammo. t mwmndo. ‘ ~ mmm¢¢0.n nmammo.u wozmsomfi QOHMm—mumbm Noamma.¢ owmmoh.¢ wnon¢¢.¢ onHmH.¢ «mammm.m mmoowc.m mmm¢~¢.m nommo~.m momm~o.m m¢oemp.m ammooq.m mH¢¢¢H.N umomww.a mmammc.a mmmmnm.a HBSHNH.H moomom. o¢nmoo. «wwmmm. mmommo. o¢m5m~.n 81 APPENDIX B - CONTINUED 30‘r 28 . CMR 1956 - 1958 26 - 24 ' 22 f 20+ P b p 8 6 1 1 M Szmsommm 2 1 p o 1 P 8 _ F p 6 - I4 2 OmSSHH.H Haemoo.a mmmNHQ.H «hnaom. caooHO. wmommw. mmowow. Hennmn. «whooh. #Nmmmo. cemeoe. mommmm. mammom. omaamq. «moHoq. mnOOnm. maammu. unawau. wmanaa. camped. memmo. OOHMMEIMDm RIT 1958 - 1960 L J‘LC—‘L 60 56 52 48 44 4O 36 32 wozmmommm 28 )- 24 20 r 16 .. 12 8 k 4,1- noaomm.¢ NHNomo.¢ ommomw.m Hemoao.m o¢momm.m ammoma.m omsomw.~ quomo.m mmmoH¢.~ ohmomH.N mamomm.a oooomo.H mo~om¢.~ menoHN.H ammomm. ammomm. ammomg. m~¢om~. «macao. ammw-.n unawoq.a 82 APPENDIX B - CONTINUED CMR 1957 - 1959 wozmmommm meqomw.a Oomomn.a mm¢m¢©.~ wooomm.a mmmom¢.~ waommm.a wonmo~.H mmoona.a moomwo.H mmamwm. mammaw. moHNow. mammoh. mommao. wNNHNn. m¢~w~¢. monwmm. mwuaem. nomnefi. humane. mnammo.a consume-gm RIT 1959 - 1961 rm” 60 56 52 48 Wozmaommm aaaama.a wauaam.a «maoam.m seamen.m osmoon.m amomnm.m mammoo.m Noaamm.m omna0m.~ caaas~.~ «mamao.~ wmaooh.a Nummam.a somohm.a amo-o.a museum. amosum. Lamasm. maaamo. HmmoH~.u no~¢o¢.u 83 APPENDIX B - CONTINUED 0 6 9 m 1 m. 8 . S 9 I 1 L Fink-..b—b 000000000000000 543210987654321 111111 wozmsomfi d‘ m~wom~.m~ «wnq~0.NN #mmmow.o~ nNHmah.mH mmmnmm.wa ooeHo¢.na nmomSN.oH howmwo.mfi mummmm.mfl mqawnn.NH ¢HMNNO.HH omqooe.oH oooon.m Hmwama.m Noomom.o unamcw.m namnwo.¢ mHmHmm.m ewomnm.m mmmeN.H mNoeoo. QOHMm—AHImbm RIT 1960 - 1962 omaoon. nawamo. mqamoo. omaamm. NHmmom. maamma. mnemoe. oowmmm. meHHm. moqNoN. HommHN. NmHmoH. moqoafl. mmnmoo. eNHmHo. Nenmmo.n HHNwmo.n mmweNH.u mammNH.n oHN¢NN.- mwwNmN.u 84 APPENDIX B - CONTINUED 1 6 n 9 1 m. C 9 5 m 9 1 J run-.Llrplrkbrp.» 000000000000000 54.321098765491421 111111 wozmnommm wnmowo.m~ ahwmmw.¢a onHmHH.¢H mm¢¢mm.ma Homnmm.wa mmomnn.aa Nmmomm.oH mqomHNJoH m¢m¢m¢.a mmN¢m0.w mmmmnw.n ommmqo.n omamam.o RIT 1961 - 1963 n mmefimm.m nahomn.¢ ma00~m.m wommwa.m «oomo¢.N ooamuo.a mmanew. Hmeomo. 9630741 13 13 AS 14 oz 0. oz wozmnommm OOHMMMImDm mmqmno.a mommoo.a mHHHmm. mnawmm. w¢nomn. mangan. mummao. MOHONm. woommq. mwmmwd. mnommm. mmqfimm. momaou. mmommfl. mmm¢oo. nwmnoo.u Nu¢m50.u nmoam~.u mamm~m.n wwom¢~.u mauwon.n 85 APPENDIX B - CONTINUED CMR 1960 - 1962 a m L wozmbommm F'Al WW m \D Homemm. mnemom. memmmw. nmmmaw. mammom. HNmmNn. mamono. mooomo. nmmgwm. moowmm. Hmoama. mmmmea. mmommm. nmwmmm. momoom. Neoowm. «HanN. mannoa. wmoHNH. omneno. Nocmmo. QOHmmmanm RIT 1962 - 1964 ; It-.. I mnwmdm.a Noamm¢.H Hmmmmm.H ooqoo~.H mmmNNH.H mammno.a oqoowm. mmmwaw. scammh. mmmmoh. NoHNao. Hmowam. owmmme. wqmamm. nnmwmm. oomsaa. mmmamo. omHm¢O.I noommH.u whoaNN.n ommNNm.u 86 APPENDIX B - CONTINUED A . m 82%. m 23$. a m a 223. n.... 833; c1 Somme. R3 . .332; m ass. m 2324 moammo. . maamoH.H mmmmmo. ommmmo.a Lehman. canoes. ammmmm. Hammnm. waaama. SANHAA. maumma. Nawomo. - shaman. suaaoo. _ «momma. momaam. _1 ommama. mamamq. moooaa. mmaaem. “maoaa. acumou. momoaa. soomha. mamoao. aommao. amaoao. mammoo. scamoo.- ammmmo.- mmawmo.- ‘ emoooa.- seaon.- Flu: aasaa~.- wwwwnwuunmwu96 uuwwnwvanmuu Szmsommm 6233on BHmmmlmDm 87 APPENDIX B - CONTINUED CMR 1962 - 1964 30 r 28 - 26 4 >02 Badman co nonanw. omwomw. mwwmwn. commas. mmowon. omonoo. mmfiwmo. omumwm. mmuaan. onmmom. maqwoa. omgamq. mamomm. oammmm. mnmwmm. o¢nnnm. . moonN. , Omwmha. mmmdm~. oooemo. m00mmo. DOHMmEImD m RIT 1964 - 1966 wozmsommm mammao.m mommom.a memmn.a mom¢no.H namomm.a mmwm¢¢.H mmafimm.fi HNONHN.H wwoNoH.~ oOMwmm. «Nommw. Nemmmn. oofimao. mmnomm. mmmoa¢. «Homom. Hmmmwfi. mcmmmo. mmaflqo.- mammmm.u mmmmwm.a 88 APPENDIX B - CONTINUED 30 I 28 L 26 P [4 2 v 2 2 o 2 CMR 1963 - 1965 m PM F p b (P n 86/420, 1111.1 wozmsommm Ch m H “Em Nnonmw. Hdammw. oncomn. waameh. hoomon. omomoo. ammomo. «momnm. Nommmm. omomas. ammome. mNowoa. nammmm. moanmm. smeowu. mmmnmu. Huanma. oommma. ¢¢¢o~a. mmmnoo. omenwo. QOHMMmImDm RIT 1965 - 1967 [—1.1fl. wozmaommm mmmmmH.H HHmNmo.H ooOmNo.H Hmwnmm. mnnoaw. ommmww. mwoomn. cammwo. ammauo. ,mqmamm. «canma. wmmwfic. maowmm. wommww. NNHwHN. nnmomfl. Nmommo. ommofio. ammomo.n aonHH.n mamnwa.u 89 APPENDIX B - CONTIN ‘D 1964 - 1966 wozmsommm OH cocoon. mawmuw. omomwn. wmmmeh. Homaah. w-¢no. Hmonmc. nammmm. Nonmom. hoommm. «manna. nmNqu. m¢H¢H¢. mmeNn. RIT 1966 - 1968 mmmmmm. whomom. mmmmmu. momwmm. SHNHmH. mmo¢m~. eoomafi. p b n b P L L 5 [4.332221 wozmaommm QUHMMNIMDm N¢N¢MN.N Nmthm.N Huqu¢.N Hommmm.~ Ho¢¢~H.N adaamm.a Hmdaow.a HNma¢0.H oom¢¢¢.H oommmm.H caoqwfi.a omommo.H omhghw. comma“. mmh¢om. mmmmoe. anmemm. mammmo. HSOmmo.u doooHN.u Nmm¢on.s 90 APPENDIX B - CONTINUED 7 L o 3 8 2 h 6 2 4. 2 CMR 1965 - 1967 — L 2 o 2 2 n r P 86].». .111 wozmsomms amanmn. acumen. annnmn. mumuoo. maanmo. momauo. amoowm. aweamm. mmuoam. moonc. mmwnae. meccae. mmcnnm. m-o¢m. maomom. , mowoou. mmmdnm. mmnmaa. mnaaofi. momwNH. mmnnmo. ochanmDm RIT 1967 - 1969 sozmsommm mmnmwn. Naooho. wweaao. mmmwmm. mmmnom. mwmnaa. Hmwumm. nanomm. moaamu. moomNN. mmoohfi. Homqfia. nqmwmo. mammoo. HOHNmo. nannoH.u moumoa.u mmwwaw.u hmm¢nu.s Hmmmum.- mmgmwm.u 91 APPENDIX B - CONTINUED L L M S38. m 833. m 1” m 38%. H 1.. mmgmm c w 322. R w 38%. m wmaomn. m SNNaom. msmouh. Nammmm. Amaamo. aaomwu. Ramses. —..|. maahwa. SNHNHS. «Lassa. osamnm. mowooa. _|_l[l 33mm. 338. mnemom. (_T _ Hoommo. P _ aamnma. _ Noomao.- Susana. _ ocmomo.- SNNmmm. fil aomoao.- a $83. a SEQ: ~11 mumuum. ~11 oaowsa.- Nassau. aaomam.- «Nooma. m-am~.- Hh¢¢HN. . onmmN.n Hammxa. omaoqm.- OAHNSH. mmoamm.- . . . . . . r. . . . . . . . . + . . . . _ w ”w um mm m .5 ,6 .4 o. “w ”WM“ mm ”A “Nam ”m “m H mm a. a. a. 2 sozmsommm wozmsommm NH gunman-mom 1955 - 1958 92 APPENDIX B - CONTINUED 30 P 28? 26 r 24 t 22‘- 20 {318 » §§16 g§14 * r“12.. A 6656m~.a “m m.m~aaam.a 23:; T m 6:3"; 8324 no“. . SSSS R284 m H 3335 .aoamoo.a owesa6.m “names. H” woomam.m amaamm. smooma.m Gamma». . aauamw.~ maooss. ~mmmno.~ camaaa. o~¢oam.~ Rosana. moomaH.N «mammm. ommamw.a Humsmn. «maano.a menses. -~moa.~ mhmoua. commoa.a 826m. _11 32$. , awesom. - enamao. anamSN. H1 «NHANS. mamawa. «Lhasa. HHSANH. oo~m66.- mmmaao. maamom.- P P p P p p F p p p p P F 60 55r 52L Ru La 0. Av 9. no.4 nu.6 A2 .6 .4 A. A..4 .3 a: at 9. 62.1 .1 VUZHDOMMh QCHmMmamDm 93 APPENDIX B - CONTINUED *7 9 n 5 9 1 m. L 6 % L 1 1 L FDPP FrPh-FFFb 5296 741852953 4433 222111 5233mm SH omumoo.~ m¢mm~m.a muommw.a o~mamn.~ Nooo¢0.H wmomam.a mnmnm¢.~ soooom.a hdhghu.a «m¢mm~.~ QNHNmo.H howooo.a . mmcmom. thwHw. omwous. unmnmo. mmm¢¢m. mmmum¢. aapgom. ammonu. «manna. QCHmmmanm RIT 1959 - 1962 l H H I j__n n P b - 0 5 5050 [+433 wozSommm [P 5 2 O 2 mm¢¢an.m mmow~¢.m monoaa.n mmenfim.¢ mofiefim.¢ mnnmau.¢ addaam.m mHHoHo.m mwNmOm.m mnemoo.m omaoon.m oom¢o¢.N enamoH.N oeamom.a Camcom.a om¢mmH.H onammw. omwomm. cadmmu. o¢wm00.u moamom.- 94 APPENDIX B - CONTINUED 1957 - 1960 L! 1‘1 ‘F' 150 f 140 - 130 - 120 - 110 p 100 - p p p p o 0 0 O 9 8 7 6 sozmsomam 50 ' L P 00 [+3 20 ' 10‘» ma wOHOmH.mu «wammm.mu ooNo¢0.~N onnmwn.au Naaana.a~ mnemmw.wa «omouo.ha amonom.oa manoafi.ma Hmnmmm.nfi nowooo.~H m¢mn¢m.aa maofimo.oH nmoonm.m Huaamn.n m3~o~n.m NNMHho.m manoma.m «Regen.~ omnooM.H omoHno. QCHmmmcmbm RIT 1960 - 1963 I I L a I A W 45 r Nozmadmmm n¢66a6.~ Hmumsm.a Aamnn~.~ nmm~m=.~ mmaamm.a ammmom.a osawoo.a oaoamm.a «mummm.a womaau.a «oomoa.a oeoaoa. mRNONS. Hammso. Banana. awaomm. mamama. mnemaa. momANo.- mmmaoa.- mmooam.- 95 APPENDIX B - CONTINUED 150 140 13 120 110 100* 1958 - 1961 muommm.mfl qmdqqh.o.— anaadw.mq mammom.¢a . am-ao.¢~ I manm-.ma . ohmenm.ua I 333.: . mmnHHo.oH 3326 3336 $23.5 3631s 333.0 unnmwn.m mwmaam.¢ ncwmmo.m moqwon.m I—r momoaw.H s~mm~3.~ wmoqma. 9o. 80L 70- 55:35 60k 50. 40k 30k 20’ 10- 2 SHMmmumbm 30 T RIT 1961 - 1964 JULIA—«TL. wozSomfi 86/42 mmo¢m>. nuqnno. Omaa¢o. naunmm. mmmmqm. Nammqa. ammmma. noqmoe. «newmm. domqqm. memaom. ommhau. acoawq. HmQMNH. wmmmho. ommmmo. NQHNHO.I QNH¢03.| NNOHAH.I ,mmomnq.n wnmeow.n 96 APPENDIX B - CONTINUED 150 P 140 F 130 120 r CMR 1959 - 1962 A .I—q! 110 , 100 )- h p P b O 000 9876 sozmsommm (J .3 r 0 I... 0 3 o 2 0 1. NH Hamm33.ma mm<30~.¢a cwm¢am.ma 3mnmon.ma ham¢~3.ma qummm.q~ mom¢nm.3q om3mwh.3 Nmmm¢3.m memwmu.w nnnnmm.n N3¢w3w.o RIT - 1965 1962 m-m66.6 _ nmomHm.m wamnm.¢ wo~w~w.m @mmmm3.m 1 Homnmm.~ m hmfimmm.a n43naw. 3¢w~oa. P D b P P I D h p b V r .3 AL .9 ,b «J nu .I .4 .1 .8 Rant .4 .4 n3 a: 13 1. oz 9. 9..1 11.1 wozgomfi QOHMMmImDm mnmqmm.a oomamN.H nomahq.a mmdq33.a mmmqq3.a 3mqqna. anqmw. mnm3nn. mnmomo. 330340. nm¢3nm. manome. wmaonm. omooaN. mammom. mmuwma. mnemgo. oom3n3.n hnoaqq.l mhh3mq.u NH¢3-.- 97 APPENDIX B - CONTINUED CMR 1960 - 1963 sozmsommm ma mmw3¢n.« Naow-.~ mmno-.~ onaqma.a nmnq 33 . .— 3ncmu3.~ wumhcm. mNHm33. Numuew. manomn. penmah. naaomo. 3ownmm. nooanm. dmnao¢. N3Hnaa. aqmaam. ommumm. m¢n3-. 333mma. smwmmo. QCHMHMIQDW RIT 1963 - 1966 S I_—1LIE:T1 1H1“ wuzmmommm Nnnnm¢.~ connmn.4 33¢nan.~ enqwmm.q wa¢n¢4.a N3mmm3.a onmnnm. ahmwww. moonom. anomam. muonno. h3nmqm. q¢mnm¢. mnnwhn. m3mnmm. n¢wm3~. nnwnmq. dqmwn3. mm3o¢3.u HN3HnH.u hmmmH~.n 98 APPENDIX B - CONTINUED 45 W 42 . 1961 - 1964 P P r P 74.18 2221 sozmsommm D 5 1 V 2 1 p 9 P 6 , ooaawa. P 3 ma mwnnH~.H wmmNmH.H mowmm3.~ 3N¢MNO.H Hmowmm. RIT 1964 - 1967 . Newman. «momma. meadow. #53333. mwoemo. omwmom. osamam. namoaq. 143qu . . ...... m~mmhn. mmn3am. meanew. 1‘ Humoaa. Nwmamc. ....J. BONmH3.n nmmwno.u 45 T 42 39 36 33 30 - 27 - 24 - 21 ’ 18 * 15 . 12 9 , 5ch151.." QmemmumDm 6 p enamom.a ~1666~.a mmHHHN.H auxmma.a ammoso.a Seam. ammaoa. Nodamm. Nassau. mommaa. «amass. maaamn. mesmma. omnamm. season. maAQMN. mummma. moamho. omaaoo. aNAvo.- mamoaa.- 99 APPENDIX B - CONTINUED 30 F 28 ‘ CMR 1962 - 1965 $28553 om mcuhm~.~ . ~H¢OMH.H «mmmmo.a Nanoao.~ nomamm. «Homom. ~o~c¢w. «Amman. HodNMN. Haomhw. Honmao. Hamaom. Hoomom. Hummee. meamm. HHmQMM. ooosnm. camomm. 3omnoa. OHHNOH. oomomo. DOHMmmumzm A 8 m 6 9 1 H. R n 5 6 9 1 _ «prprPpr-b.fiokp Sal-96307491852963 4433332221111 553% nonoo¢.~ momqwm.a nawwom.fi smmo-.H nmmmn~.~ moaomo.a noomnm. neonmw. «moaaw. hNHmNn. neanqo. mommom. meumwe. ,wmmaoa. mummam. momnmu. moqmma. waqmn3. Namm33.a ~h¢3m3.n Nm¢~m~.u 100 APPENDIX B - CONTINUED b 28 CMR 1963 - 1966 Hm. 44D Hm Hwooow.~ Omom¢H.H hammmc.a wmm¢m3.~ «gamma. Numeuo. onwmom. mandaw. oehmmh. «3533». «@0333. owoqmm. mummmm. ommdwe. RIT 1966 - 1969 «memme. _1I anaamm. _ aaqaam. _ 3cm¢0~. — Nammoa. , _ mamama. . .11 F squamo. P p n b p b P b D b p p u r b “w "w Mu “w ”M ”W “W n" n“ M“ mwum Mu .6 .4 Szmsommm aOHMmmumDm mucunm.fi moowuw.~ Hmawan.a mnam3o.~ hmm33m.H waaamm.a ¢mm~w~.a unmana.a 3nm¢oo.~ mmwmmm. oomoqm. mmNNMN. monwwo. gammam. mahoa¢. hmcaom. nnowma. emommo. wwmnmo.u oamqma.n ~H¢m¢~.u 101 APPENDIX B - CONTINUED NN QCHmMMumbw m L 8883 m _U Hammad A w fl 332; TH 23de m . 338; M . . 33?; m 2934 m A 338.3 1. 1. . . mammaa. I noLNSR.H Lemmas. . aomsao.a nnnsmm. L mammaa.a momma». . “mamom.a sesame. l mommqu.a - ommoas. 1 NaoHNH.H _ mommao. lommmma. - aamnao. Hm mmouum. _ ommsam. enemas. mamaam. - «BNSNS. Hmmnma. fillrlllamooom. mommaa. ..- ommmhm. mammam. —w whoamm. seamen. oheaaa. - mamamm. — «humoo. fibril. Haaaqm. Flinn; ammoua.- - mwmooa. Hmama~.- . . . . . . x. . . (r . . .1 . . . . . wmmyummmm a nmummu... sozSomam Szmsommm 102 APPENDIX B - CONTINUED 45” 42 A CMR 1955 - 1959 1 I I f! 1 n. P n b D _I a. 1..8 2221... wozmsommm 5 1 mm mowawa.u mqwcmo.m mmwwwm.H wmaomw.a momman.~ m33nmo.H w¢3umm.H mm3mm¢.~ wNHHo¢.H wean3n.a m3~m3~.a m¢N53H.H mm~m33.~ wNMHHm. wmnmaw. woqmah. madhao. mm¢m~m. mmmauq. mommum. moomNN. Q3HMQMnm3m RIT 1959 - 1963 56 L sozmscmmm «Nwmam.m Hanan~.m ma~¢¢m.¢ mmwomo.¢ Summom.¢ moNNm3.¢ ommdam.m mnemon.m m~m3~N.m ma3nmm.~ 33nm¢o.~ mmnwmm.~ on3Hh3.N «onmwh.a quwmq.a mmamo~.a NNmHNm. eanemo. ~o~n¢m. oewmmo. mmehwm.u 103 APPENDIX B - CONTINUED w 33.3.3 m 3836 w 3839: T 1 233..” m... “SETS MW 2335 m 223.3 m 2388 ~¢-43.- ammoam.w maoaum.a~ ~mo~mo.~ Hesooa.a~ nomsme.~ nommso.ma Hmonmu.m mmommu.ua onqamo.~ mmammm.ma Hmumom.a memsaa.aa oooaaa.a Hoaoam.NH amnean.a Rmomsm.aa mam-m.~ mosqma.oa oemm~3.3 mwanmn.m maaanm. whomam.~ _ ommmms. H-~mw.m naaman. Romase.a oonamm. manomo.m «sauna. am6m~6.3 Hmaomo.- —1 nommom. Seaamm.- w. . p» . t. . . . . . . . . . . . . . . . . . . . p . x. . p . mmmmmmwwwwwwwmw wxflmmwwnnmmmusa 5233mm wozmsommm «N eHmmmumbm 104 APPENDIX B - CONTINUED CMR 1957 - 1961 [— P p P P n b b P P P r b b b n 0 nu 0 0 O 0 o 0 0 O 0 0 0 0 O 5 I... ..J 2 1 0 9 3 7 6 5 I4 3 2 1 1... 1 1 l 1 1 wuzmaommm mm osmwnn.m~ mmnmmh.ma mmamam.~d mmcqnm.oa mmm~mw.ma mHmONw.¢H m¢namm.mH mn~3~m.- mommma.~a nmqawm.oH hooaom.m smowmm.m nummoa.m ommnma.n own~¢3.o mawhca.m o¢moma.¢ mm¢oca.m W mo~©~H.N nmnncH.H «ommoa. QOHMmmumDm RIT 1961 - 1965 fimmmm‘. .PLbP-bb-DpprpP 59.963074118529614 .4 .4 .J a; Q. 1. 9. 9‘ 9..1 1. 1. wozmpommm monNn.H mnamuo.a onmqmn.a aafinnq.d nonmnm.H N~¢Nn~.fi am¢amfl.~ mnmfiqa.fi “Hemqm. omom¢m. ¢q-¢h. hommqo. .omwamm. «nann¢. nmmmmm. Hoswmu. «Naooa. hwaumo. ¢¢nmmo.u owomma.u Nmoam~.n 1958 - 1962 105 APPENDIX B - CONTINUED 150 ’ 140 , 130 ’ 120 F 40 30 20 L 10 mHNNmn.oH #oam¢m.ma 4H$th.¢a RIT 1962 - 1966 nmsamm.na n30-~.mH m¢¢~om.- mmmaa¢.~a u¢aamc.oH mwmohm.¢ «mmooo.m n A g A my Ammonm.w “I mmm3¢¢.n Fr nhnano.o mHNoww.m H cooaaa.m wnnmwm.m NammmH.¢ I~ _- «somhm.u 3324 r nmmmmm. m¢~m¢a. wozmaommm OOHMm—mugm mqmmmm. oan¢~m. m¢~oom. @momaw. nqmm¢n. Ammamo. o¢ommo. mmqmnm. mmmNHm. mm~mm¢. omaaaa. mwwu¢n. nnnqmm. Nwmomm. anqmod. omNoHH. mNHNmo. -oooo.- ¢na¢oo.u m~m-a.a _on¢owa.u 106 APPENDIX B - CONTINUED CMR 1959 ' 1963 A A l '— 150 ' 140 ' 130 ' 120 - 110 ' lOU ' - b h 000 987 yuzgomfi wmammn.mq aqunmo.¢a ¢o-om.na wfinmmo.na Hunhnm.NH mN¢nmh.HH whqmaw.oa NanmH.oH mmmmmN.m anonum.w Naomon.n menn33.n man~¢~.o mmmmn¢.m oomnah.¢ ommmmm.m maoqaa.m noowmc.m . ONHONo.H «nawom. NNNodH. oonwm-MDm RIT 1963 - 1967 F.» A T I ”054mm. haamna. NmNwa. omqmqw. o¢-mh. ¢wmmmo. mNNnno. Nucnmm. cannam. amanmc. msmdmn. a¢¢¢nn. nmo¢nm. nmmqam. Hwamna. mm¢mmo. aoonmo. mmo¢No.n qummo.u mmmn¢q.u cmnmom.n 107 APPENDIX B - CONTINUED CMR 1960 - 1964 onmmuo.a mnnaao.a nanomm.a I. meH¢¢.H mmo~on.~ mmHNwN.H f1 1).. r 1 ameSN.H «NanN4.4 LIAIJ 3.55; , mammom. ncméwm. nwn¢aw. «Nummn. moom¢o. neaoom. P 0 3 8 2 6 2 F I4 2 2 2 o¢mome. nmmooe. p p n — 086/... 2111 wozmaommm NN¢nNm. womn¢~. manned . m¢hwmo. wN QOHMumugm 45'; RIT 1964 - 1968 gf—Lr—x 42 L 39% 36" 33 _ — . b P . L 8 5 2 9 6 3 1 1 1 . 24 r 21 P h P 0 7 3 2 wuzmadmmm mommnn.H mn~¢n¢.~ o~mmon.~ amm~w~.H «mmuma.a o~o~44.H mmmmmo.~ «unndm. nqnemm. mqaaon. ~m¢mmo. sowmmm. NmNNHm. qooo~¢. on¢a¢m. m¢mmm~. Hunmoa. nmo¢ma. mnmqsa.- noamma.u ammuna.u 1961 - 1965 108 APPENDIX B - CONTINUED . Szmaommm , nma¢om.a oww~w¢.~ momaad.a @Nnman.a m¢aon~.~ Nhamm4.~ mannn:.~ maoama. N¢wmcm. moamww. mmuo¢s. fiancee. «mumwm. unmoom. smama¢. nSQNnM. omommu. m¢wnmq. anomaa. oawoqa. Hm¢aho.u nonwmamDm RIT 1965 - 1969 1 30 F wuzmsommm mmmm¢n.~ «mmonm.a adeno~.H néoonq.a nmo~m3.~ 3~n¢mm. ommgam. mmnmnw. muwmon. mowmmo. Hammao. unmo¢m. mnamn¢. oHoHcd. o¢3wun. Nmammu. mdqqu. nMAmoq. amHOfiD. nmhom3.u ommmo~.n 109 APPENDIX B - CONTINUED 0 3 b 8 2 . 6 2 CMR 1962 - 1966 ‘TL—x . A. 2 2 2 P o 2 18 r 16 r 14 - wozmaommm b 12 10 ' 8 r- 6 . 4 - 2 b on 2&3; m m :29: 2334 H 1.. Snag; 333.; R% 1 323; $834 w L R234 m¢¢¢a~.H m aqmuno.d o-mn4.H nqmamm.d q:a-a.~ L oumnaq.a umumoo.a 1 acumm~.~ Hommmm. ~¢¢nm~.~ mnnnnm. . on-~3.~ naauom. oommmm. mmwoqu. Nqomqm. ¢ho¢no. mnnqnh. mmewao. maINNo. an-¢n. H¢wmom. waoo~¢. gunman. hmhaaq. mannwm. «canon. .1. qqanna. n¢n-~. ¢~maoo. HNquN. mm¢4m3.u oom¢¢~. ;|lioommoa.- , . . . . . . . \_ rr ”m Mu mu u” M» MN Mu mm a, a, wozmpomfi 82$-Em 110 APPENDIX B - CONTINUED 1501? 140 r 1960 1955 a l 4 ‘ .4 ‘ A._1 130 P 120 ' 110 100 * pp p P 0000 9876 5553mm 0 5 b 0 [4 U 3 20 10 an wommhon.om summam.m~ unaam~.n~ ¢¢mmmm.m~ oma4m~.¢~ momumn.- ammnm~.H~ Namm-.ma ¢aawh~.ma oHa-~.oH muamo~.mq 4¢3¢o~.n4 amazo~.~4 monomh.a~ mna~m~.m awam¢~.n H3H~¢~.o naao¢~.e mufimn~.m an~m~.H. ¢¢~m-. QDHmMmumDm RIT 1960 - 1965 b| b 2 3 Wozmndmmm m¢ommh.m qmoowm.n ¢m~mwn.m nqaqu.n 3¢nqma.N meanmn.u omhqmn.u m3¢cmm.~ unam$q.m mmoamm.q mmmqam.4 qamuoo.q dmm¢=¢.q ,heqoau.a _qnnnca.a #mnaom. mqaado. 3¢0NH¢. nwmqau. ommmao. Hm¢mwa.n 111 APPENDIX B - CONTINUED 1956 - 1961 Belg-1 p 150 r 0000 9876 wozm30mmm 30 k 20 L 10 Qanom¢.¢~ moade.nN N¢n443.~N oqhnow.oN amaomm.$a no¢wmn.ma unmowq.ha qunnm.mH «wmmon.¢a wmmmmm.na Nnnomn.mq oshmaq.qa mnanfia.m nmdmmh.m nuwmam.n HONNan.o RIT - 1966 1961 ‘fi mwahmo.~ n¢3finn.N N3333¢.N 303¢©~.~ mamawq.u mmwcna.a omman.~ #mmmwo.a mmm¢¢m.a Nqn33¢.q amoonN.q awomaq.a ,nwmwom. o¢m¢mw. Iqanowo. ”no¢onm. ¢5n¢aq.m HN¢Nmn. m¢mmmm.a owquu. Nmmmwo.~ mnn¢ca. ooo~m¢.~ q Manama.- aoa¢h~. ##mnmq.u wozubommm . SHmwmumSm 112 APPENDIX B - CONTINUED CMR 1957 - 1962 L_ ‘m ~‘n'P-nobI-npp-n.n 000000000000000 .3 A. a. 0‘ 1. nu a, R..l .b .3 .4 .5 n4 .1 .1 1. 1. 1..1 1 wozmmommm an OHNon.mH «whnmn.hq manqmo.oq «maooh.md msmumm.¢a mhomnm.ma nnomuo.ma ouuao~.ma oow¢ma.~a ¢un3m~.aa w¢awon.a N~n4m¢.m mmahnm.n mooNNc.m mduwah.m n~mnmn.¢ RIT 1962 - 1967 amnmhm.m ¢om¢oa.~ wnmomo.m Naaoma.a mmOANN. - n p r P p P p b n P P n 06284062814062 65544143322211 Szmaommm obemmumDm nom~m0.~ quAAn.~ 3h¢mon.~ ~NNNNN.N nsmmmo.m ¢~N¢¢m.a on¢mow.a nmmOoo.H mnmwam.a anNmmn.q Nm¢mnw.4 flnNfl$D.4 mmmqmm. onmoqw. mmqwoo. aéhon. 4mm¢mn. mqmm¢u. ¢m¢aoa. «mmo¢a.u m33~m4.n 113 APPENDIX B - CONTINUED 150 CMR 1958 - 1963 .H¢o¢nn.¢ WUZMDommm 20 r «n qunon.oq omndnm.na «Amnaq.mH monnm~.¢a nomm¢¢.m« RIT 1963 - 1968 F] V~r »_ l A anONo.NH ~a¢amn.aa owmmmm.oH meéna.od mnoman.a mo:nn¢.m ¢o¢n¢0.5 wmmmqm.o NmNHmm.m h¢©~oa.m mmqmom.m H onwo~c.u ¢waqw.H maomqo.a macama. wozmaommm DDHzmmanm n¢mwmm. enunom. moomqw. 3¢¢nmn. nnmmnm. mcamwo. _mmmmmo. .oNNNnm. nao~4m. mn¢~o¢. mounaq. 334 Nmn. Nnmoom. mon«¢~. Ramona. om¢HmH. mouomo. ¢¢O~No. nno¢no.n H¢Nmmo.n woqddq.u 114 APPENDIX B - CONTINUED 4 6 9 1 m. C9 4 S 9 L 1 pl-Pb1.bp-PmpppP-V 000000000000000 «4.4 1.“; .1 n. o, nu «I Au .3 .4 “J “A .1 111111 wuzmaoth nn anmww.¢a qum¢4.¢a qdmm3¢.nq motho.ua mm¢¢ma.aa muwoma.aa RIT 1964 - 1969 omamm¢.ofi mm¢-m.m #qwnwm.w n¢4m¢~.w quwam.n Damonm.o fl . qunnD.o mmqnmu.n nmunmm.¢ oaaouw.m m¢¢~wa.n “ Gnn¢¢n.~ N04530.H qn¢aom. Demand. wozmsommm QUHMmMImDm noqmmm. moqmam. amnnmm. .nmauam. ionnooo. mnemoo. ommmmm. NmNmam. #wnnm¢. ,owwqa¢. mmqamn. qa¢me. nano¢u. mmamma. hmmnqq. maoams. qaoo¢o. omoHAo.u #mnnoo.a Nmamqq.u ammooq.u 115 flmWHB-CWHWW CMR 1960 - 1965 .17 1"3 41"” 30 P 28 P 26 P 24 r 22 P 20 _ 14 P P P 8 6 1 1 wozmaommm 12 - 10 ' 84- .5 P 4. on nmmqqm.q NNnONm.H aomm-.~ mdmnmc.a mnmm¢m.q 5Nn¢m¢.q mquon.q d:n«-.a mmnmmH.H mmwwmc.H 0550mm. mmumom. m¢wmam. nmummh. canono. «Hanan. namm¢¢. Nmaomn. qwo¢ou. meannq. mmoawa. QOHMmmanm RIT 1965 - 1970 j ‘7 wmoaa¢.H duommm.a accomm.a m¢onn«.a anoooq.q Naomma.~ nsoama. mwmmmm. mmmoom. oommwn. o¢momo. Nmmmnn. meoom. «ommm¢. mm¢amm. mn¢mm~. qoqoom. nqqmuq. nnqamo. qwmqwo.- .ommmao.- 45 V 42 P 39 - 36 . 33 . 30 ~ 27 - wozmaommm 24 - 21 ' 18 ' 15 ‘ 12 ’ 9 , 6 . 3 r APPENDIX C THE FIRMS USED IN THE STUDY IN ORDER OF THEIR APPEARANCE ON THE COMPUSTAT TAPE Georgia Pacific Corporation Weyerhaeuser Company American Smelting and Refining Giant Yellowknife Mines Texas Gulf Sulphur Company Incorporated Swift and Company Anheuser Busch, Inc. Grain Belt Breweries 9. Pabst Brewing Co. 10. Barton Brands. Inc. 11. Hiram Walker 12. Dr. Pepper Co. 13. Archer-Daniels-Midland Co. 14. British-American Tobacco Co. 15. Bayuk Cigar Co., Inc. 16. General Cigar Co., Inc. 17. Burlington Industries, Inc. 18. Great Northern Nekoosa Corp. 19. Hammermill Paper Co. 20. International Paper Co. 21. Kimberly-Clark Corp. 22. Union Camp Corp. 23. Westvaco Corp. 24. Diamond International Corp. 25. Federal Paper Board Co. 26. Fibreboard Corp. 27. Time, Inc. 28. Meredith Corp. 29. Air Reduction Co. 30. KOppers Co. 31. American Cyanamid Co. 32. Celanese Corp. 33. Dow Chemical 34. E. I. DuPont DeNemours 35. FMC Corp. 36. W. R. Grace & Co. 37. Olin Corp. 38. Pennwalt Corp. 39. Union Carbide Corp. 40. Commercial Solvents Corp. 41. Diamond Shamrock Corp. CDxlO‘U'IDwNH 116 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 117 APPENDIX C--Continued Reichhold Chemicals. Inc. Stauffer Chemical Co. Miles Laboratories, Inc. Economics Laboratory Gillette Co. Continental Oil Co. Quaker State Oil Refining Standard Oil Company of Indiana Mobil Oil Corp. Standard Oil Company of New Jersey Texaco, Inc. Masonite Corp. U. S. Gypsum Co. Mansfield Tire & Rubber Co. Rubbermaid, Inc. Anchor Hocking Corp. American Cement Corp. Lone Star Industries Marquette Cement Manufacturing Co. Medusa Portland Cement Co. Bethlehem Steel Corp. COpperweld Steel Kennecott Correr Corp. Alcan Aluminum, Ltd. Harvey Aluminum Scovill Manufacturing Co. Crane Co. Tecumseh Products Co. Trane CO. Ceco Corp. Hoover Ball & Bearing Co. Caterpillar Tractor Co. Clark Equipment Co. Brunswick Corp. Ex—Cell-O Corp. Harris-Intertype Co. Mesta Machine Co. Stewart Warner Corp. Addressograph-Multigraph Diebold, Inc. Pitney-Bowes, Inc. General Electric Co. RCA Corp. Globe Union, Inc. Square D Co. 87. 88. 89. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. 106. 107. 108. 109. 110. 111. 112. 113. 114. 115. 116. 117. 118. 119. 120. 121. 122. 123. 124. 125. 126. 127. 128. 129. 130. 131. 118 APPENDIX C--Continued Textron, Inc. Maytag Co. Admiral Corp. Motorola, Inc. Collins Radio Co. Fairchild Camera & Instrument General Instrument Corp. General Signal Co. High Voltage Engineering Raytheon Co. P. R. Mallory & Co. Sprague Electric Co. American Motors Corp. Chrysler Corp. General Motors Corp. Cummins Engine Fruehauf Corp. White Motors Co. Borg-Warner Corp. Kelsey Hayes Co. Timkin Co. Aerojet General Corp. Bendix Corp. Grumman Corp. Lockheed Aircraft Corp. McDonnell-Douglas Corp. North American Rockwell Corp. Northrop Corp. TRW, Inc. Beech Aircraft Corp. Cessna Aircraft Co. Rohr Corp. General American Transportation Corp. Trans-Union Corp. Beckman Instruments, Inc. Rockwell Manufacturing Co. Johnson Service Co. Robert Shaw Controls Bell & Howell Co. Eastman Kodak Co. Insilco Corp. Ronson Corp. Consolidated Freightways, Inc. McLean Trucking Co. American Airlines, Inc. 132. 133. 134. 135. 136. 137. 138. 139. 140. 141. 142. 143. 144. 145. 146. 147. 148. 149. 150. 151. 152. 153. 154. 155. 156. 157. 158. 119 APPENDIX C—-Continued Eastern Air Lines Emery Air Freight Corp. Trans World Airlines UAL, Inc. American Telephone & Telegraph American Broadcasting American Consumer Industries Franklin Stores Mercantile Stores Co., Inc. Sears Roebuck & Co. W. T. Grant & Co. S. S. Kresge Co. G. c. Murphy Co. J. J. Newberry Co. Dominion Stores Jewl Co., Inc. Kroger Co. Red Owl Stores, Inc. Safeway Stores, Inc. StOp and ShOp, Inc. Winn-Dixie Stores, Inc. Host International, Inc. Gray Drug Stores Hilton Hotels Corp. Twentieth Century Fox Film Greyhound Corp. United Brands BIBLIOGRAPHY Anderson, A. V. "Relevant Accounting Data for The Investor in Listed Common Stocks." Unpublished Ph.D. dis- sertation, University of Minnesota, 1964. Beaver, William H. "Market Prices, Financial Ratios, and the Prediction of Failure." Journal of Accounting Research , (Autumn, 1968), 179-92. "Financial Ratios as Predictors of Failure." Journal of Accounting Research: Selected Studies, (1966), 71-128. . "Alternative Accounting Measures as Predictors of Failure." The Accountinngeview, (January, 1968), 113-22. Beaver, W. H.; Kennelly, J. W.: and Voss, W. M. "Predictive Ability as a Criterion for the Evaluation of Accounting Data." The Accounting Review, (October, 1968), 675-83. Bierman, Harold, Jr. "Measuring Financial Liquidity." The Accounting Review, (October, 1960), 628-32. Brillain, J. A. Corporate Dividend Policy. Washington, D.C.: Brookings Institute, 1966. Carson, A. B. "Cash Movement: The Heart of Income Measurement." The Accounting Review, (April, 1965), 334-38. Chambers, Raymond J. Accounting Evaluation and Economic Behavior. Englewood Cliffs, N.J.: Prentice-Hall, 1966. "Measures and Values." The Accounting Review, (April, 1968), 239-48. . "Edwards and Bell on Business Income." The Accounting Review, (October, 1965), 731-42. Cohen, Jerome B., and Zinbarg, Edward D. Investment Analysis and Portfolio Management. Homewood, Illinois: Richard Irwin, Inc., 1967. 120 121 Coleman, A. R. "Funds Statements and Cash Flow." The Controller, (December, 1961), 592. Conover, W. J. Practical Nonparametric Statistics. New York: John Wiley & Sons, Inc., 1971. Davidson, Sidney; Sorter, G. H.: and Kalle, Hemu. "Measuring the Defensive Position of the Firm." Financial Analysts Journal, (January, 1964), 23-290 Dear, James E. "Uses and Limitations of Cash Flow in Financial Analysis." The Louisiana CPA, (August, 1967), 4-9. . "Cash Flow in Financial Analysis and Its Implications." Unpublished Ph.D. dissertation, Louisiana State University, 1965. Fama, Eugene, F. "The Behavior of Stock Market Prices." JOurnal of Business, (April, 1965), 34-105. Grunewald, Adolph E., and Nemmers, Erwin E. Basic Managerial Finance. New York: Holt, Rinehart, Winston, 1970. Heath, L. C. "Calculation and Meaning of Cash Flow in Securities Analysis." Financial Analysts Journal, (September, 1962), 65-75. Hendriksen, Eldon S. Accounting Theory. Homewood, Illinois: Richard Irwin, Inc., 1970. Horngren, Charles T. Cost Accounting - A Managerial Emphasis. Englewood Cliffs, N.J.: Prentice- Hall, 1967. Horrigan, James 0. "Some Empirical Bases of Financial Ratio Analysis." The Accounting Review, (July, . "The Determination of Long-Term Credit Standing With Financial Ratios." Journal of Accounting Research: Selected Studies, (1966), 44-71. . "A Short History of Financial Ratio Analysis." The Accounting Review, (April, 1968), 284-94. 122 Iselin, E. R. "Chambers on Accounting Theory." The Accountinngeview, (April, 1968), 231-39. King, Benjamin. "Market and Industry Factors in Stock Price Behavior." Journal of Business, (January, 1966), 139-90. Larson, Kermit, and Schattke, R. W. "Current Cash Equivalent, Additivity and Financial Action." The Accounting Review, (October, 1966), 634-42. Lorie, James H., and Fisher, Lawrence. "Rates of Return on Investment in Common Stock." Journal of Business, (January, 1964), 1-21. McKeown, James C. "An Empirical Test of a Model PrOposed by Chambers." The Accounting Review, (January, 1971), 12-30. Mao, James C. T. Quantitative Analysis of Financial Decisions. Toronto: Macmillan, 1969. Mason, Perry. 'Cash Flow' Analysis and the Funds Statement. Accounting Research Study #2. New York: The American Institute of Certified Public Accountants, 1961. . "Cash Flow Analysis and Funds Statements." The Journal of Accountancy, (March, 1961), 59-72. . "Cash Flow Analysis and Funds Statements - Conclusions and Analysis." The Journal of Accountancy, (December, 1961), 66-68. Neubert, H. "Money Flow and The Firm." The Accounting Review, (January, 1959), 84-90. O'Connor, Melvin C. "An Empirical Examination of the Usefulness of Financial Ratios to Investors in Common Stocks." unpublished Ph.D. dissertation, University of Kansas, 1971. Paton, W. A. "The Cash Flow Illusion." The Accounting Review, (April, 1963), 243-51. Revsine, Lawrence. "Predictive Ability, Market Prices, and Operating Flows." The Accounting Review, (July, 123 1971), 480-90. Smith, L. H. "Security Analyst Looks at Financial State- ments." Journal of Accountancy, (August, 1959), 37-41. ' Sorter, G. H.; Becker, S. W.; Archibald, T. R.; and Beaver, W. H. "Corporate Personality as Reflected in Accounting Decisions: Some Preliminary Findings." Journal of Accounting Research, (Autumn, 1964) 183-96. . "Accounting and Financial Measures as Indi- cators of Corporate Personality - Some Empirical Findings." Research in Accounting Measurement, Evanston, Illinois: American Accounting Associa- tion, 200-10. Sorter, G. H., and Benston, G. "Appraising the Defensive Position of the Firm." The Accounting Review, (Octdber, 1960), 633-40. Staubus, George J. "Current Cash Equivalent for Assets: A Dissent." The Accounting Review, (Octdber, 1967), 650-62. Stone, W. E. "Funds Statement As An Analysis Tool." The Accounting Review, (January, 1959), 127-30. Story. "Cash Movements and Periodic Income Determination." The Accounting Review, (July, 1960), 449-54. Sussman, M. R. "Implications of Periodic Cash Flow." Journal of Finance, (December, 1962), 658-62. Tolbert, W. F. "Earnings, Cash Flow, Dividend Payout and Growth Influences on the Price of Common Stocks." Unpublished Ph.D. dissertation, Louisiana State university, 1968. Walter, James E. "Determination of Technical Solvency." The Journal of Business, (January, 1957), 30—43. Wells, M. L. "Cash Flow Analysis As Used By Management and The Financial Analyst." NAA Bulletin, (September, 1964), 41-44. Weston, Yamane , Zimmer, 124 J. Fred, and Brigham, Eugene F. Managerial Finance. New York: Holt, Rinehart, Winston, 1969. Taro. Statistics - An Introductory Analysis. New YOrk: Harper & Row, 1967. R. K. "An Empirical Analysis of Stock Market Price Determinants." Unpublished Ph.D. disser- tation, The Ohio State university, 1964. . n . 7‘ ALIA-Mai ATE U éfll’mwu 1293 ”'chle 1111111111MWI“ ' 3 3145 2653