Cash Flow Accounting: is It Time For Increased Disclosures?

Cash flow reporting has attracted increased attention in the United States, especially in the past decade. However, despite the use of per share cash flow information by security analysts, the Financial Accounting Standards Board (FASB) has prohibited its disclosure. This article provides a historical perspective of cash flow accounting in the U.S., as well as a discussion of cash flow advocates. The final section presents arguments for increased disclosures in the area of cash flows, including operating cash flow on a per share basis and a schedule of free cash flows.

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The FASBs Concepts Statement On Cash Flows And Present Value

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v19i4.2186 ◽

2011 ◽

Vol 19 (4) ◽

Author(s):

Stanley Martens ◽

Thomas Berry

Keyword(s):

Cash Flow ◽

Accounting Standards ◽

Fair Value ◽

Cash Flows ◽

Financial Accounting ◽

Financial Accounting Standards Board ◽

Present Value ◽

Numerical Examples ◽

Flow Information

In February 2000, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Concepts No. 7, Using Cash Flow Information and Present Value in Accounting Measurements. In this document the FASB asserts without proof that a present value computation along its lines will provide a good estimate of the fair value of an asset or liability. Using numerical examples provided by the FASB, we attempt to construct arguments in support of the FASB’s claim. We find that such arguments require strong and not at all obvious assumptions about players in hypothetical markets.

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A Research Note On The Issue Of Non-Articulation And The Method Used To Calculate Net Operating Cash Flow

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v25i1.1048 ◽

2011 ◽

Vol 25 (1) ◽

Cited By ~ 2

Author(s):

Terry J. Ward ◽

Jon Woodroof ◽

Benjamin P. Foster

Keyword(s):

Cash Flow ◽

Indirect Method ◽

Direct Method ◽

Accounting Standards ◽

Cash Flows ◽

Financial Accounting ◽

Financial Accounting Standards Board ◽

Font Size ◽

Operating Cash Flow ◽

Statement Of Cash Flows

Using a proxy for nonarticulation, prior researchers found evidence that many companies using the indirect method of reporting net cash flow from operations have a significant level of nonarticulation.  The purpose of this study is to determine if companies using the direct method of reporting net cash flow from operations experience significantly lower levels of nonarticulation than companies that use the indirect method of reporting net cash flow from operations.  Results show that companies using the direct method have significantly less nonarticulation than companies using the indirect method.  This finding suggests that the Financial Accounting Standards Board (FASB) should consider requiring companies to use the direct method of preparing the Statement of Cash Flows.

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The usefulness of operating cash flow information: Does format matter?

Corporate Ownership and Control ◽

10.22495/cocv10i1art4 ◽

2012 ◽

Vol 10 (1) ◽

pp. 44-52 ◽

Cited By ~ 2

Author(s):

Shadi Farshadfar

Keyword(s):

Cash Flow ◽

Indirect Method ◽

Direct Method ◽

Cash Flows ◽

Indirect Methods ◽

Flow Information ◽

Operating Cash Flow ◽

Future Cash Flows ◽

Direct And Indirect Methods ◽

Level Analysis

This study investigates whether the direct method of presenting cash flows from operations is superior to the indirect method in its ability to forecast future cash flows. It also considers the effect of industry characteristics on the relative usefulness of direct and indirect methods of cash flow presentation. The study, which uses a sample of Australian firms, finds that both the direct and indirect methods improve the forecast of future cash flows. However, the indirect method of reporting cash flows from operations is more relevant than the direct method in predicting future cash flows. Evidence from the industry-level analysis overall reinforces the main results.

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Operating Cash Flow Ratios Measure A Retail Firms Ability To Pay

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v10i4.5907 ◽

2011 ◽

Vol 10 (4) ◽

pp. 51 ◽

Cited By ~ 4

Author(s):

Thomas L. Zeller ◽

Brian B. Stanko

Keyword(s):

Cash Flow ◽

Cash Flows ◽

Financial Accounting ◽

Financial Ratios ◽

Ratio Analysis ◽

Financial Reports ◽

Financial Ratio ◽

Ability To Pay ◽

Financial Ratio Analysis ◽

Operating Cash Flow

Analysts derive a broad array of financial ratios from published financial reports to assess business enterprise performance. Only a few, however, may be necessary for meaningful insight. This study explores whether operating cash flow ratios provide unique or redundant insight in financial ratio analysis of retail firms. Adoption of Financial Accounting Standard #95, The Statement of Cash Flows, by the Financial Accounting Standards Board in 1987 provides the impetus for the ongoing interest in cash flow ratios. We find that operating cash flow ratios provide unique insight, relative to traditional accrual-based financial ratios, regarding a retail firms ability to pay. Therefore, financial ratio analysis of a retail firm should include cash flow ratios for predictive, explanatory or descriptive purposes.

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The Incremental Usefulness Of Income Tax Allocations In Predicting One-Year-Ahead Future Cash Flows

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v23i4.1378 ◽

2011 ◽

Vol 23 (4) ◽

Author(s):

Benjamin P. Foster ◽

Terry J. Ward

Keyword(s):

Cash Flow ◽

Income Tax ◽

Financial Statements ◽

Cash Flows ◽

Financial Accounting ◽

Font Size ◽

Long Time ◽

Operating Cash Flow ◽

One Year ◽

Future Cash Flows

<h2 style="text-align: justify; margin: 0in 34.2pt 0pt 0.5in; mso-hyphenate: none; tab-stops: center 3.25in;">Interperiod income tax allocation has been a hotly debated financial accounting issue for a long time.  Critics of interperiod tax allocation frequently question the usefulness of the extra information, particularly considering the FASB’s decision usefulness approach stated in its Conceptual Framework.  This study extends the research of Cheung et al. (1997) and Krishnan and Largay (2000) by using the ability to predict future taxes paid and future cash flow as criteria to evaluate the usefulness of interperiod tax allocation. This study extends previous research by examining not only whether interperiod tax allocation included in financial statements is useful, but also by examining whether such information is incrementally useful beyond taxes paid. For predicting future taxes paid and operating cash flow, our analyses provides little evidence that interperiod tax allocation information included in financial statements adds incremental predictive value beyond taxes paid as reported on the cash flow statement.</h2>

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Relative Ability of Earnings Data and Cash Flow in Predicting Future Cash Flows

International Journal of Accounting and Financial Reporting ◽

10.5296/ijafr.v3i1.3803 ◽

2013 ◽

Vol 3 (1) ◽

pp. 214 ◽

Cited By ~ 1

Author(s):

Nasrollah Takhtaei ◽

Hassan Karimi

Keyword(s):

Cash Flow ◽

Stock Exchange ◽

Accounting Standards ◽

Cash Flows ◽

Financial Accounting ◽

Company Size ◽

Financial Accounting Standards Board ◽

Working Capital ◽

Relative Ability ◽

Future Cash Flows

The purpose of this study is to examine earnings relative ability, operational cash flow, and two traditional measures of cash flows namely net earnings plus depreciation and operational working capital in predicting future cash flows. Also, the effect of company size on ability of predictive measures mentioned is examined in this study. The population examined includes accepted companies in Tehran Stock Exchange during period from 2005 to 2009. The results indicate that net earnings have more ability than operational cash flows and its traditional proxies in predicting the cash flows future. These findings are consistent with Financial Accounting Standards Board (FASB) claim based on earnings in preference on cash flows in predicting future cash flows.

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The Relative Ability of Earnings and Cash Flow from Operations in Predicting Future Cash Flows: Evidence from India

International Journal of Accounting and Financial Reporting ◽

10.5296/ijafr.v5i2.8468 ◽

2015 ◽

Vol 5 (2) ◽

pp. 178 ◽

Cited By ~ 1

Author(s):

Mwila Joseph Mulenga

Keyword(s):

Cash Flow ◽

Stock Exchange ◽

Cash Flows ◽

Least Square ◽

Financial Accounting ◽

Financial Accounting Standards Board ◽

Financial Status ◽

Ordinary Least Square ◽

Future Cash Flow ◽

Least Square Approach

The current study examines ability of earnings and cash flow from operations in predicting future cash flow from operations of Indian companies listed in Bombay stock exchange from 2002 to 2014. The study used cash flow from operations directly reported in the cash flow statement. For the purpose of estimating regression models, Ordinary least square approach used and in measuring the predictive power of each models in forecasting future cash flow adjusted R-squared used as forecasting measure. The findings of this study reported cash flow from operations to have more power in than earnings in predicting future cash flow, which do not support the assertion given out by Financial Accounting Standards Board. The findings of this study provide additional insights to Indian capital market researchers and also benefit users of accounting information in India by providing them with empirical evidence on the beneficial ability of cash flow data in predicting future cash flow and that would assist them in making their investment decisions, lending and other decisions and also knowing the financial status of company they wish to invest.

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Analisis Kemampuan Informasi Laba dan Arus Kas dalam Memprediksi Arus Kas Masa Depan

Berkala Akuntansi dan Keuangan Indonesia ◽

10.20473/baki.v5i2.21400 ◽

2020 ◽

Vol 5 (2) ◽

pp. 132

Author(s):

Miranti Pangestu

Keyword(s):

Cash Flow ◽

Sampling Method ◽

Stock Exchange ◽

Cash Flows ◽

Net Income ◽

Earnings Information ◽

Service Companies ◽

Flow Information ◽

Operating Cash Flow ◽

Future Cash Flows

The purpose of this study is to examine whether earnings information or cash flow information can predict future cash flows in service companies in Indonesia. The sample determined in this study, using the purposive sampling method, produced 145 companies listed on the Indonesian Stock Exchange in 2015-2017, with a total of 435 observations. In this study, multiple regression analysis techniques are used. The results shown by the t-test are partially significant net income. In this case, net income is a predictor of future cash flows. Whereas cash flow information namely operating cash flow, investing cash flow, and funding cash flow do not affect the future cash flow

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Comparing Growth Rates Used in Discounted Cash Flow Valuations

Business Valuation Review ◽

10.5791/20-00007.1 ◽

2021 ◽

Vol 40 (1) ◽

pp. 2-12

Author(s):

Roger J. Grabowski

Keyword(s):

Cash Flow ◽

Growth Rates ◽

Cash Flows ◽

Business Unit ◽

Security Analysts ◽

Discounted Cash Flow ◽

Earning Growth ◽

Organic Growth ◽

The Subject ◽

Free Cash Flows

Estimating growth in net cash flows is one of the key components in applying the discounted cash flow (DCF) method in valuing any company, reporting unit, or other business unit. This paper explains the underlying assumptions of the DCF method and demonstrates how to compare the most commonly used basis for estimating net cash flows (sometimes referred to as free cash flows), expected organic growth, to historic estimates of growth of the subject company and estimates of earning growth commonly prepared by security analysts.

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Study on Companies from the Energy Sector from the Perspective of Performance through the Operating Cash Flow

Energies ◽

10.3390/en14123667 ◽

2021 ◽

Vol 14 (12) ◽

pp. 3667

Author(s):

Claudia Diana Sabău-Popa ◽

Luminița Rus ◽

Dana Simona Gherai ◽

Codruța Mare ◽

Ioan Gheorghe Țara

Keyword(s):

Labor Productivity ◽

Cash Flow ◽

Stock Exchange ◽

Average Duration ◽

Significant Negative Correlation ◽

Cash Flows ◽

Energy Sector ◽

Or Management ◽

Operating Cash Flow ◽

The Impact

In this paper we analyzed the link between companies’ performance, in terms of cash and income, and the labor productivity or management rates, in case of the companies from the energy sector listed on the Bucharest Stock Exchange. We focused on the energy sector because of the impact that its expansion has on the evolution of economies around the world and because of its dynamics in the sense of gradually shifting to the use of energy from renewable sources. We have used panel regression models to analyze the operating cash flow and the profitability rates and the determination of a causal or dependency relationship with labor productivity or management rates. The results of this study show a significant negative correlation between operating cash flows and the average duration of stock rotation, and no correlation between productivity and the operating cash flow. Instead, the average duration of stock turnover does not at all influence the profitability rates, and productivity is always significant for the return on assets, ie forthe return on equitywith a positive coefficient, as expected. The gap between the average duration of payment of suppliers and the average duration of receivables does not significantly influence neither the cash flow nor the rates of return.

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