Evidence on the relationships between earnings and various measures of cash flow

Article Abstract:

Methods for measuring cash flow and assessing corporate liquidity are discussed, including: accrued earnings methods, adjustments of earnings method, net income added to depreciation and amortization amounts calculations, and working capital methods. The differing cash flow accounting methods are researched to determine whether they send managers and executives the same or similar signals in the same situations, whether the cash flow method used affects statements of earnings, and whether earnings records or cash flow methods are capable of predicting income for the upcoming fiscal periods. The correlations of the various methods yielded little in the way of results; however, the research did indicate that net income plus depreciation and amortization method and working methods predicted upcoming periods' earnings better than other methods.

Profit, Profits, Liquidity (Finance), Cash management

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The incremental information content of accrual versus cash flows

Article Abstract:

The role of accrual and cash flow measures in explaining security prices is examined. The association between unexpected returns and unexpected earnings is tested, as is the association between unexpected returns and unexpected cash flows. These relations are tested in time-series and cross-sectional contexts. Results indicate that cash flow data have an incremental information content relative to earnings, that cash data have an incremental information content in addition to that contained in earnings, and that accrual data have an incremental information content in addition to the information contained in cash flow data.

Cash flow, Accrual basis accounting

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The year-end LIFO purchase decision: the case of Farmer Brothers Company

Article Abstract:

Last-in, first-out (LIFO) inventory valuation methods can have a major effect on the cost of goods sold for both tax and financial reporting. The factors involved in the end-of-period decision to acquire inventory are analyzed in a case study of the Farmer Brothers Company in the fiscal year of 1977. The company's actual decision and plausible alternative decisions are analyzed for their potential effects on cash flow and reported income.

Analysis, Finance, Management research, Inventory control, Corporation reports, Company reports, Financial research, Farmer Brothers Co.

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