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Abstract
The main objective of the present research is to examine whether the accounting profitability indicators that are used within the DuPont analysis of profitability are capable of predicting macroeconomic activities, particularly subsequent real Gross Domestic Product (GDP) growth and the inflation rate. To attain this, the present research investigated the relationship between aggregate accounting profitability drivers; operating profit margin and operating asset turnover, and subsequent real GDP growth and inflation. Furthermore, the prediction power of aggregate accounting profitability is compared to that of aggregate annual stock returns to signify whether accounting data is valuable in predicting GDP and inflation with application on the firms within the EGX100 index for the period from 2007 to 2014. The results showed that aggregate operating asset turnover and return on net operating assets, and aggregate annual stock returns contained information that are useful in predicting subsequent annual GDP growth and inflation. There was an insignificant relationship between aggregate operating profit margin and real GDP growth. The results also showed that using both profitability data and stock market returns would enhance the prediction power for GDP growth. For inflation, aggregate accounting profitability data did not contain any data that could predict inflation, however, its prediction power appeared when used with aggregate annual stock returns together. Accounting data are useful and of value relevance on the macroeconomic level and should be used by forecasters of the macro economy