Investigating to Content of the Earning Components and How to Weight the Components by Managers and Investors

Stocks Valuation needs information related to the level of company’s profitability. Investors and managers should pay attention to historical information in decision making regarding stock valuation and forecasting the future earnings. In this paper، the theory of earnings components superiority was compared with the total earnings in explaining the future earnings. It was also evaluated whether or not managers and investors consider the earnings components in their decisions. Furthermore، the way of earnings components weighted by investors and managers was tested. For these purposes، the data of 80 companies listed in Tehran Stock Exchange (480 years-firms) for a period of 1382-87، was collected. The results revealed that persistency of different components of earnings is not the same and components of earnings are better explains future earnings compared to the total earning. The earnings components are also taken into account by the managers and investors in their decision-making process. Furthermore، managers and investors underestimate the cash components of earnings persistency in forecasting the future earnings.