The usefulness of accounting measures in predicting future cash flow

Inhaltsverzeichnis (Table of Contents)

• 1. Introduction
• 2. Literature Overview
• 3. Research design
  • 3.1 Models and methodology
  • 3.2 Data and sample
  • 3.3 Descriptive statistics
• 4. Results
  • 4.1 In-sample regressions
    • 4.1.1 Aggregate earnings and cash flow
    • 4.1.2 Disaggregated earnings
    • 4.1.3 Cash flow decomposition
  • 4.2 Rolling window regressions
    • 4.2.1 Parameter estimates
    • 4.2.2 Summary statistics of the model-based and analysts' forecasts
    • 4.2.3 Error measures and performance of the model-based forecasts
    • 4.2.4 Relative performance of the model-based and analysts' forecasts
• 5. Additional tests
  • 5.1 Undeflated data
  • 5.2 Alternative earnings variable
• 6. Conclusion

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This study aims to empirically examine the relative ability of accounting earnings and cash flow to predict future cash flow. The study also investigates the role of accruals in cash flow predictions, challenging the assertion of the Financial Accounting Standards Board (FASB) that accrual earnings provide a better indication of enterprise performance than current cash receipts and payments. Key themes explored in the study include:

• The predictive power of accounting earnings and cash flow in relation to future cash flow
• The role of accruals in forecasting future cash flows
• The impact of different accounting models on cash flow predictions
• The performance of model-based forecasts compared to analysts' forecasts
• The implications of the study's findings for decision-making in finance and accounting

Zusammenfassung der Kapitel (Chapter Summaries)

• Chapter 1: Introduction: This chapter introduces the research topic and provides a brief overview of the debate on the relative predictive power of accounting earnings and cash flow. It highlights the importance of cash flow predictions for financial decision-making and outlines the objectives and structure of the study.
• Chapter 2: Literature Overview: This chapter summarizes the existing literature on forecasting future cash flows using accounting variables. It discusses the classical approach of comparing the predictive power of earnings and cash flow, reviewing earlier studies and their findings.
• Chapter 3: Research design: This chapter outlines the methodology and research design used in the study. It details the models used, the data sources, the sample selection criteria, and the statistical methods applied.
• Chapter 4: Results: This chapter presents the results of the empirical analysis. It examines the predictive power of accounting earnings and cash flow using both in-sample regressions and rolling window regressions, and compares the performance of model-based forecasts to analysts' forecasts.
• Chapter 5: Additional tests: This chapter explores alternative specifications and sensitivity analyses, such as the use of undeflated data and an alternative earnings variable.

Schlüsselwörter (Keywords)

This study focuses on the crucial role of accounting measures, particularly earnings and cash flow, in predicting future cash flows. It delves into the debate surrounding the relative predictive power of these measures, examining the impact of accrual accounting and the performance of model-based forecasts. Key terms include: cash flow forecasting, accounting earnings, cash flow from operations, accruals, model-based forecasts, analysts' forecasts, predictive power, and financial reporting.