This paper examines the level of persistence and predictability in growth in operating performance for firms listed on the ASX from 1987 to 2003. The measures of operating performance analysed were: sales; earnings before interest, tax, depreciation and amortisation; and net profit after tax before abnormals.
Persistence in growth was present, however, this persistence was more apparent in small firms compared to large firms. Also, high book-to-market equity firms displayed more persistence than low book-to-market equity firms. The level of persistence was affected by the sampling methods applied to the data.
This study found that the earnings-to-price, sales-to-price and book-to-market equity ratios provided no predictive power in forecasting growth. The book-to-market equity ratio was found to be a function of past growth not future growth. This provided further evidence of investors considering the prospects of a firm conditional on past performance.