The Relationship between Return on Investment and Profit after Adjustments to Annual Financial Statements

This study investigates the relationship between return on investment and profit in relation to adjustments to annual financial statements. For this purpose, return on investment and profit indices are used as dependent and independent variables, respectively. Data collected from the financial statements of 105 Tehran Stock Exchange companies between 2008 and 2012 are considered. Results indicated that the profit variable has a direct relationship with the dependent variable before adjustments to financial statements but it has an inverse relationship after it. In other words, profit has a high explanatory power before annual adjustments. However, we witness the reduction of information explanatory power after adjustments. Moreover, the reliability of financial statements decreases.

Keywords:

annual adjustments , return , profit