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Order backlog and its association with fundamental analysis metrics and future earnings

Author

Listed:
  • Rajiv Banker

    (Temple University)

  • Russell Barber

    (University of Colorado Denver)

  • Dana Hollie

    (Louisiana State University)

  • Han-Up Park

    (University of Saskatchewan)

Abstract

Order backlog is an important non-GAAP metric that is a leading indicator of future earnings. We explore how various fundamental analysis metrics interacted with order backlog impacts future earnings. This study examines whether future earnings predicted by order backlog is contingent on other fundamental analysis metrics, such as a sales decrease, the cash conversion cycle, asset growth, and the ratio of order backlog to sales. We find that order backlog is an even more informative leading indicator of future earnings when sales decrease, the cash conversion cycle is longer, and asset growth is higher. In contrast, we find that order backlog in the presence of a higher order backlog to sales ratio predicts lower future earnings. We also find that market participants incorporate the moderating effect of order backlog on sales decreases and the cash conversion cycle, while we do not find the same evidence with asset growth and the backlog to sales ratio. These empirical findings are important for managers who want to effectively communicate the prospects of a firm’s future profitability, and for investors who want to understand the financial fundamentals of firms with an order backlog. Overall, our findings show that the informativeness of order backlog can be conditional on fundamental analysis metrics in certain instances.

Suggested Citation

  • Rajiv Banker & Russell Barber & Dana Hollie & Han-Up Park, 2024. "Order backlog and its association with fundamental analysis metrics and future earnings," Review of Quantitative Finance and Accounting, Springer, vol. 62(4), pages 1733-1753, May.
    • Handle: RePEc:kap:rqfnac:v:62:y:2024:i:4:d:10.1007_s11156-024-01248-6
    DOI: 10.1007/s11156-024-01248-6
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    More about this item

    Keywords

    Order backlog; Future earnings; Sales decrease; Cash conversion cycle; Asset growth;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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