ABSTRACT
For more than 100 years, firms have generated balance sheets and income statements, and have reported financial results in one way or another to tax authorities, investors, and regulatory agencies. Considerable research has recently emerged, however, to support the notion that the information content of financial metrics (earnings before interest, tax, depreciation, and amortization or EBITDA, cash flow, quick ratio, and so on) has weakened considerably in the past few decades. Specifically, the emergence and growth of a knowledge effect has rendered traditional accounting measures relatively ineffective in helping to understand the dynamics of corporate profitability. New metrics, such as industry-specific Key Performance Indicators (KPIs) can instead be referenced to shed light on what really matters to a firm’s success.
