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Examination of Factors Affecting Financial Statement Placement Order

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Mar 22, 2017

In March 2017, Georgia Tech released a report in which anecdotal data suggest that firms are using the placement order of their financial statements to provide emphasis and affect perception about financial performance and position.

Their objective was to see if they can identify systematic differences across firms that would help explain the financial statement placement order employed. They identified a sample of 400 public companies drawn from four different revenue quartiles. In addition to financial data for each firm, they identified the sector in which each firm operates and the firm’s auditor.

They found that the balance sheet is much more likely to be the lead-in financial statement. Of the 400 companies in the sample, 272 (68.00%) present the balance sheet first while 127 (31.75%) present the statement of operations (income statement) first. In examining the factors that may drive the lead-in financial statement decision, they noted that firms leading with the statement of operations are larger based on revenue and total assets. Further, they are more profitable, reporting a higher return on equity and higher net margin.

Their asset turnover and operating cash margin are also higher. Finally, likely attesting to their larger size and debt service capacity, the firms leading with the statement of operations also report higher financial leverage.

Review the full report on the Georgia Tech's website.

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