An Experiment Of Student Understanding Of Accruals Versus Cash Flows

The concepts of both accrual accounting and cash basis accounting need to be thoroughly understood by accounting graduates as they enter the workplace. In making decisions, both managers and investors often may need to make adjustments from one basis to the other. But do students really understand these concepts? This study uses an experimental approach to determine if students in both the U.S. and Mexico understand the association between accrual and cash flow numbers in the area of depreciation. The results reveal that the majority of student participants in both countries do not understand the relationship between depreciation and cash flows. This suggests that the way depreciation is taught in intermediate accounting may need to be approached differently in order for students to understand the nature of depreciation and its effect on earnings and cash flows.

Download Full-text

Predicting Cash Flow From Operations: Evidence On The Comparative Abilities For A Continuum Of Measures

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v17i3.2237 ◽

2011 ◽

Vol 17 (3) ◽

Cited By ~ 1

Author(s):

Charles E. Jordan ◽

Marilyn A. Waldron

Keyword(s):

Conceptual Framework ◽

Cash Flow ◽

Prediction Models ◽

Petroleum Industry ◽

Cash Flows ◽

Predictor Variables ◽

Accrual Accounting ◽

Operating Cash Flows ◽

Flow Prediction ◽

Cash Basis

Prior studies have attempted to confirm or reject the FASB's assertion in its Conceptual Framework that accrual accounting measures provide better information for predicting cash flows than do cash basis measures.  However, their results proved largely inconclusive and contradictory.  The current study identifies research constructs that may be driven these inconsistent findings and makes adjustments to mitigate their effects.  Univariate cash flow prediction models are developed for companies in the petroleum industry using a continuum of predictor variables.  In predicting operating cash flows, one variable, net earnings plus depreciation and amortization, consistently achieves superior results.

Download Full-text

An Experiment Of The Effect Of Teaching Different Computational Methods Of Operating Cash Flows On Student Understanding

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v25i3.1026 ◽

2011 ◽

Vol 25 (3) ◽

Author(s):

Linda M. Nichols ◽

Jose Eduardo Miranda-Lopez

Keyword(s):

United States ◽

Graduate Students ◽

Computational Methods ◽

Experimental Approach ◽

Cash Flows ◽

Student Understanding ◽

Font Size ◽

Indirect Methods ◽

Southwest United States ◽

Operating Cash Flows

This study uses an experimental approach to determine if student understanding of the association between depreciation and cash flows differs based on which method of computing operating cash flows is presented to students.   The participants are undergraduate and graduate students in business at a major university in the southwest United States.  The participants attended sessions where they heard a brief lecture explaining operating cash flows using either the direct or indirect methods.

Download Full-text

Corporate Governance and Firm Free Cash Flows: Evidence from Malaysia

Information Management and Business Review ◽

10.22610/imbr.v5i11.1084 ◽

2013 ◽

Vol 5 (11) ◽

pp. 531-537

Author(s):

Razieh Adinehzadeh

Keyword(s):

Corporate Governance ◽

Cash Flow ◽

Audit Committee ◽

Cash Flows ◽

Free Cash Flow ◽

Governance Mechanism ◽

Data Set ◽

Corporate Governance Mechanism ◽

Free Cash Flows ◽

The Relationship

This study provides view of free cash flow and corporate governance (CG) by addressing the relationship between audit committee characteristics with free cash flow. Specifically, this study explores whether audit committee characteristics are substitutes to control agency problem regarding to free cash flow within Malaysian firms. The data set comprise of 200 firm observations Malaysian companies for four consecutive years, which comprise of 2005 to 2008. The results show that size of audit committee, frequency of audit committee meeting, proportion of audit committee independence is positively associated with level of free cash flow (FCF). The results of study highlight the importance of corporate governance mechanism, in the form of audit committee characteristics, in the management of cash flow.

Download Full-text

Net Operating Working Capital, Capital Budgeting, And Cash Budgets: A Teaching Example

American Journal of Business Education (AJBE) ◽

10.19030/ajbe.v9i1.9575 ◽

2016 ◽

Vol 9 (1) ◽

pp. 31-38 ◽

Cited By ~ 1

Author(s):

James A. Turner

Keyword(s):

Student Satisfaction ◽

Cash Flow ◽

Capital Budgeting ◽

Cash Flows ◽

Net Income ◽

Working Capital ◽

Accrual Accounting ◽

Operating Cash Flows ◽

Present Information ◽

Budgeting Process

Many introductory finance texts present information on the capital budgeting process, including estimation of project cash flows. Typically, estimation of project cash flows begins with a calculation of net income. Getting from net income to cash flows requires accounting for non-cash items such as depreciation. Also important is the effect of changes in net operating working capital on cash flow. While students readily understand how to account for depreciation when calculating cash flow, they typically have much more difficulty understanding how and why changes in working capital affect cash flows. This paper develops a teaching example to show exactly how and why changes in net operating working capital affect cash flows. The example shows how to derive operating cash flows for a proposed project using the accrual accounting method and then shows a cash budget for the same project. Finally, the example shows that the discrepancy between the cash flows shown in the cash budget and the operating cash flows can be resolved by accounting for changes in working capital. A survey of students in an MBA managerial finance course indicates student satisfaction with the teaching example and gives evidence that students prefer the teaching example to explanations of the effect of working capital on project cash flows given in the assigned text.

Download Full-text

The Relationship Between of Cash Flows (Financing, Investment and Operating) and Stock Prices, Size of the Firms

International Journal of Financial Research ◽

10.5430/ijfr.v11n5p424 ◽

2020 ◽

Vol 11 (5) ◽

pp. 424

Author(s):

Tamer Bahjat Sabri ◽

Khalid Mohammad Hasan Sweis ◽

Issam Naim Mahammad Ayyash ◽

Yasmeen Faheem Asaad Qalalwi ◽

Israa Sami Abbas Abdullah

Keyword(s):

Stock Returns ◽

Stock Prices ◽

Null Hypothesis ◽

Stock Exchange ◽

Statistical Significance ◽

Nonparametric Test ◽

Cash Flows ◽

The Other ◽

Significant Difference ◽

The Relationship

This study sought to test the relationship between cash flows from operating activities, investment activities and financial activities and on one hand and stock returns and the volume of assets on the companies listed in Palestine Stock Exchange on the other hand. The study incorporated 24 companies in 2018 and the required data were obtained through the financial statements. To test the hypotheses of the study, the Mann-Whitny U Test was used, a nonparametric test. Also the Kolmogorov-Smirnov was done. The findings demonstrated that the value of the Whitny U Test was (-3.291) Z with a statistical significance at 1%. Based on this, the null hypothesis was rejected and the alternative one, stating that there is a statistically significant difference between the operating flows of companies with low assets and those companies with high assets, was accepted. However, the other null hypothesis was accepted. The study recommended that companies and investors should take into consideration cash flows when taking an investment decision in Palestine Stock Exchange.

Download Full-text

Financial Distress Prediction Through Cash Flow Ratios Analysis

International Journal of Financial Research ◽

10.5430/ijfr.v10n3p63 ◽

2019 ◽

Vol 10 (3) ◽

pp. 63 ◽

Cited By ~ 2

Author(s):

Amrizah Kamaluddin ◽

Norhafizah Ishak ◽

Nor Farizal Mohammed

Keyword(s):

Cash Flow ◽

Financial Distress ◽

Cash Flows ◽

Efficiency Ratio ◽

Financial Distress Prediction ◽

Distress Prediction ◽

Statement Of Cash Flows ◽

Relationship Of ◽

Solvency Ratio ◽

The Relationship

The purpose of this study to examine the relationship of cash flow ratios in predicting financial distress companies, with industrial and consumer product companies in Bursa Malaysia as the sample. The study on financial distress is critical as it can lead to bankruptcy, which may adversely affect the economy of the country. Therefore it is worth exploring any indicators that can identify the possibility of financial distress in the company. The tools enable to address the potential problems that can mitigate from distressed financial position. Most prior studies in Malaysia focus on traditional financial ratios, while this study exploits the strength of cash flow ratios. The liquidity ratio, solvency ratio, efficiency ratio and profitability ratio utilized in this study are derived from the statement of cash flows. The Altman Z-score is used to measure the level of the financial distress. The findings show mixed relationships between solvency ratio and financial distress and a negative significant relationship between profitability ratio and financial distress, whilst efficiency ratio has no relationship with the financial distress. These results suggest that cash flow ratios are reliable tools to predict financial distress for Malaysian context. The study is useful in giving insights to the stakeholders in their decision making.

Download Full-text

An Evaluation of Chinese Firms' Profitability: 2005–2013

Accounting Horizons ◽

10.2308/acch-51154 ◽

2015 ◽

Vol 29 (4) ◽

pp. 799-828 ◽

Cited By ~ 3

Author(s):

Jing Liu ◽

James A. Ohlson ◽

Weining Zhang

Keyword(s):

Cash Flow ◽

Balance Sheet ◽

High Growth ◽

Cash Flows ◽

Free Cash Flow ◽

Sample Period ◽

Chinese Firms ◽

Capital Growth ◽

Free Cash Flows ◽

The U.S

SYNOPSIS We empirically examine the profitability of leading Chinese firms, benchmarked against comparable U.S. firms, for the period 2005–2013. Return on invested capital (ROIC), which excludes leverage effects on performance, provides the primary metric. Averaged over firms and years, the two sets of firms have similar profitability, about 11 percent annually. Decomposing ROIC into free cash flow yield and invested capital growth, we show that the same ROIC has very different compositions: while the Chinese firms have high growth and negative free cash flows, the U.S. firms have low growth and positive free cash flows. Due to balance sheet conservatism, we infer that Chinese (U.S.) firms' free cash flow yields and the resulting ROICs have been biased downward (upward). After correcting for the bias, we show that Chinese firms have much higher profitability than their U.S. counterparts: 15.1 percent versus 8.1 percent. This result is driven by the abundance of growth opportunities in China in our sample period. When we control for the growth rates, we find U.S. firms have been more “efficient” in generating more free cash flows than Chinese firms.

Download Full-text

Determining the Relationship between the Items of the Cash Flow Statement with Abnormal Output in the Companies Enlisted in Stock Exchange Organization

JOURNAL OF SOCIAL SCIENCE RESEARCH ◽

10.24297/jssr.v5i3.3407 ◽

2014 ◽

Vol 5 (3) ◽

pp. 850-863

Author(s):

Hassan Ghodrati ◽

Fatemeh Haftlang Mohammadjani ◽

Hossein Jabbari

Keyword(s):

Data Analysis ◽

Panel Data ◽

Cash Flow ◽

Positive Relationship ◽

Stock Exchange ◽

Panel Data Analysis ◽

Cash Flows ◽

Independent Variables ◽

The Relationship ◽

Random Method

The continuity of the operations, growth or decrease in the business activities of any company is in line with the on time and optimized funding of cash liquidity and suitable as well as the proper use of them in investment paths in the direction of creating output and ultimately, to increase the shareholders wealth. The goal of this research is to determine the relationship between cash liquidity and abnormal output of stocks. For this purpose, 130 companies were selected by employing simple random method among the companies were enlisted in Stock Exchange Organization. Different cash liquidities included the operational and non-operational cash flows were taken as the five main independent variables, the divisible profits, financial leverage and the size of the company were defined as other independent variables; and, the abnormal output of stock was considered as dependent variable. After analyzing the pre-hypothesis by using combined multi-variable regression and based on the panel data analysis, five linear relations were assessed. The results of the research showed positive relationship between different cash flows, except tax cash flow and the abnormal output of stock. With respect to the determining coefficients which were obtained, the assessed relationship was considered very weak linear relation. The results of T.Student and Fischer showed that the assessed relationship was not significant in the statistical society level. Analyzing the non-parametric correlation showed similar results.

Download Full-text

A Conceptual Framework For The Indirect Method Of Reporting Net Cash Flow From Operating Activities

American Journal of Business Education (AJBE) ◽

10.19030/ajbe.v3i12.961 ◽

2010 ◽

Vol 3 (12) ◽

pp. 19-32

Author(s):

Ting J. (TJ) Wang

Keyword(s):

Conceptual Framework ◽

Cash Flow ◽

Indirect Method ◽

Accounting Standards ◽

Cash Flows ◽

Financial Accounting ◽

International Accounting Standards ◽

Approach To Teaching ◽

Statement Of Cash Flows ◽

Cash Basis

This paper describes the fundamental concept of the reconciliation behind the indirect method of the statement of cash flows. A conceptual framework is presented to demonstrate how accrual- and cash-basis accounting methods relate to each other and to illustrate the concept of reconciling these two accounting methods. The conceptual framework recognizes additional categories of effects defined in the Accounting Standards Codification 230-10-45-28 and International Accounting Standards 7.18 (Statement of Financial Accounting Standards No. 95) in regard to the indirect method, which makes the concept of reconciliation between the accrual- and cash-basis more thorough and complete. The paper provides an approach to teaching the concept of the reconciliation of accrual- and cash-based accounting methods.

Download Full-text

When Empathy Failed: Using Critical Oral History to Reassess the Collapse of U.S.-Soviet Détente in the Carter-Brezhnev Years

Journal of Cold War Studies ◽

10.1162/jcws.2010.12.2.29 ◽

2010 ◽

Vol 12 (2) ◽

pp. 29-74 ◽

Cited By ~ 4

Author(s):

James G. Blight ◽

janet Lang

Keyword(s):

Soviet Union ◽

Oral History ◽

Communist Party ◽

The Other ◽

Party Leader ◽

Jimmy Carter ◽

The Soviet Union ◽

Soviet Invasion ◽

The Relationship ◽

The U.S

Drawing on “critical oral history” conferences held after the demise of the Soviet Union, this article seeks to explain why the détente in U.S.-Soviet relations collapsed at the end of the 1970s. Both the U.S. president, Jimmy Carter, and the Soviet Communist Party leader, Leonid Brezhnev, had sought to improve bilateral ties, but instead they found that the relationship deteriorated and then broke down altogether after the Soviet invasion of Afghanistan. The article suggests that neither side had a sufficient appreciation of how the other side perceived the relationship. The authors argue that the critical oral history helped officials on both sides to develop a sense of empathy for how the other side viewed its own interests and objectives. Empathy does not imply any sympathy; instead, it merely entails an effort to understand the other side's perceptions and goals. Presenting excerpts from an oral history conference, the authors argue that greater empathy in the policymaking process might have helped to avoid an outcome that neither side desired.

Download Full-text