The Number of Sales Digits as a Window into Future Sales Growth

50 Pages Posted: 28 Sep 2022

See all articles by Joshua Filzen

Joshua Filzen

Boise State University

Kyle Peterson

University of Oregon - Charles H. Lundquist School of Business

Date Written: September 21, 2022

Abstract

Considerable variation exists among firms of similar size reporting in different units of measurement (e.g., dollars, thousands of dollars, millions of dollars). We examine one implication of this choice: the number of sales digits reported in the income statement. Across a battery of univariate and multivariate tests, we provide evidence that firms with fewer sales digits and firms with a decrease in their sales digits reported on the income statement have significantly higher future sales growth. The number of sales digits also predicts sales growth even when controlling for analysts’ expectations of future sales growth. However, in cases where managers issue explicit sales forecasts (only 23 percent of observations), the information in the number of sales digits is subsumed by their disclosures. Finally, we also examine market implications associated with this characteristic and find evidence that investors incorporate the expectations for future growth in current prices, but also find some evidence of mispricing. Overall, these findings suggest that this conventional financial reporting characteristic, the number of sales digits, is a surprisingly useful predictor of future growth.

Keywords: Sales growth, Financial Statements, Number of digits, Unit of Measurement

JEL Classification: G17, M41

Suggested Citation

Filzen, Joshua and Peterson, Kyle, The Number of Sales Digits as a Window into Future Sales Growth (September 21, 2022). Available at SSRN: https://ssrn.com/abstract=4226281 or http://dx.doi.org/10.2139/ssrn.4226281

Joshua Filzen (Contact Author)

Boise State University ( email )

United States
208-426-3423 (Phone)

Kyle Peterson

University of Oregon - Charles H. Lundquist School of Business ( email )

1208 University of Oregon
Eugene, OR 97403-1208
United States

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