Business Commons^™

Do Changes In The Sg&A Ratio Provide Information About Changes In Future Earnings, Analyst Forecast Revisions, And Stock Returns?, Eugene Scott Johnson

Graduate Theses and Dissertations

In fundamental analysis, increases in the ratio of selling, general and administrative (SG&A) costs to sales (SG&A ratio) are viewed as negative signals about future firm performance. However, this interpretation focuses on the overall change in the SG&A ratio and ignores the underlying changes in the components of the ratio. For example, prior literature finds that the interpretation offered by fundamental analysis does not hold during periods of decreasing sales. I contend that a further partitioning of the full sample into subsamples representing all possible combinations of changes in the components of the SG&A ratio, and the ratio itself, will …