scholarly journals Valuation Schools and the Evolution of the Income Approach. An Evaluation of Change Trends

2019 ◽  
Vol 27 (2) ◽  
pp. 66-76
Author(s):  
Ewa Kucharska-Stasiak
Keyword(s):  
Cash Flow ◽  
Financial Reporting ◽  
Relevant Literature ◽  
Market Value ◽  
Cash Flows ◽  
Advantages And Disadvantages ◽  
Eu Legislation ◽  
Income Approach ◽  
The Subject ◽  
Valuation Methodology

Abstract The income approach is the subject of debates conducted by academics and practitioners as one of the most controversial approaches in valuation practice. It is also somewhat differently understood by the three historically shaped valuation schools (US, British and German). This article compares the main assumptions underpinning the income approach’s investment method between the three schools in order to: 1) determine why the assumptions change and in what direction; 2) assess the advantages and disadvantages of explicit cash flows; and 3) evaluate the advisability of incorporating explicit cash flows into Polish valuation methodology. A thesis is formulated that, in Poland, the investment method should use implicit cash flows for estimating the market value of properties. There is a need to include explicit cash flow in university programs, but their use should be limited to valuations undertaken to determine the investment value of a property or the market value of portfolio properties, as well as valuations carried out for the purposes of financial reporting as required by EU legislation (MSSF 13 and MSR 40). The article was prepared based on the review and analysis of the relevant literature.

scholarly journals KREATIVNO FINANSIJSKO IZVEŠTAVANJE O NOVČANIM TOKOVIMA

2017 ◽  
pp. 163
Author(s):  
Aleksandra Arsenijević ◽  
Tadija Đukić
Keyword(s):  
Cash Flow ◽  
Financial Reporting ◽  
Market Value ◽  
Financial Statements ◽  
Cash Flows ◽  
Financial Position ◽  
A Company ◽  
Operating Activities

Financial statements should realistically show financial position, performance, and cash flows of a company. Creative financial reporting represents a deliberate manipulation of information in financial statements in order to create misperceptions on company operations. Creative financial statements are primarily intended for investors, in order to encourage them to purchase company shares and thus increase its market value. Creativity in compiling cash flow statements lies in presentation of operating activities as investing and financing activities, and vice versa.

Does Financial Reporting Conservatism Mitigate Underinvestment?

2017 ◽  
Vol 34 (2) ◽  
pp. 258-283 ◽  
Author(s):  
Hyun A. Hong ◽  
Yongtae Kim ◽  
Gerald J. Lobo
Keyword(s):  
Information Asymmetry ◽  
Cash Flow ◽  
Financial Reporting ◽  
Cash Flows ◽  
Agency Conflicts ◽  
Negative Relation ◽  
Investment Projects ◽  
External Capital ◽  
Cash Flow Volatility

This study examines the role of financial reporting conservatism in mitigating underinvestment problems. Recognizing that volatile cash flows increase the need to access external capital markets and that agency conflicts and information asymmetry make external capital costlier than internal capital, which leads managers to forgo valuable investment projects, Minton and Schrand document a negative relation between cash flow volatility and investment. We draw on Minton and Schrand’s framework to isolate underinvestment problems and hypothesize and document that conservatism mitigates the negative relation between cash flow volatility and investment and that this mitigative effect is more pronounced for firms with ex ante more severe agency conflicts. We also document that conservatism mitigates the sensitivity of investment to cash flow volatility by facilitating access to external capital.

scholarly journals A comparative study of information content of cash flow, cash value added, accounting earnings, and market value added to book value of total assets in evaluating the firm performance

2017 ◽  
Vol 5 (2) ◽  
pp. 112
Author(s):  
Mohammad Delkhosh ◽  
Zahra Malek ◽  
Maryam Rahimi ◽  
Zohreh Farokhi
Keyword(s):  
Firm Performance ◽  
Information Content ◽  
Financial Reporting ◽  
Value Added ◽  
Market Value ◽  
Cash Flows ◽  
Maximum Information ◽  
Book Value ◽  
Operating Cash Flows ◽  
Market Value Added

The aim of the present study was to compare the utility of traditional accounting reporting and financial reporting for performance evaluations. Accordingly, the relationship between six ratios of net cash flows, net operating cash flows, cash value added, income after tax, income before tax, and market value added to the book value of total assets and Tobin’s Q ratio as an indicator of performance evaluation were examined. For this purpose, the information of 122 companies listed on Tehran Stock Exchange in the years 2009 to 2014 were used. Besides, linear regression and analysis of variance (ANOVA) were used to analyze the data. The results showed that except for the ratio of net cash flows to the book value of total assets, there was a significant relationship between the other five ratios. In addition, it was noted that cash value added to net operating cash flows had more information content concerning evaluating the firm performance. The results also indicated that net cash flows did not contain information content for evaluating the firm performance. However, the market value added had the maximum information to be used for evaluating the firm performance.

The effect of auditor industry specialization and board independence on the cash flow reporting classification choices under IFRS: evidence from Taiwan

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Shuling Chiang ◽  
Gary Kleinman ◽  
Picheng Lee
Keyword(s):  
Cash Flow ◽  
Financial Reporting ◽  
Negative Relationship ◽  
Cash Flows ◽  
Board Independence ◽  
Firm Level ◽  
Industry Specialization ◽  
Content Type ◽  
Auditor Industry Specialization ◽  
Board Of Director

Purpose This study aims to explore the relationship between audit partner and firm industry specialization and board of director independence on the decision by Taiwanese firms to use International Financial Reporting Standards (IFRS) flexibility concerning reporting interest income and expense and dividends received in different sections of the statement of cash flows. This flexibility existed in Taiwan for the first time in 2013, the year that Taiwan switched from its own generally accepted accounting principle to IFRS. Design/methodology/approach Using 2013 data for a sample of 1,227 firms, 354 of whom changed their reporting classification, this study examined the interaction effect of board independence and partner-level and firm-level auditor industry specialization on the cash flow reporting decision using logistic regression. Findings The results show there is a substitute relationship between board independence and partner-level industry specialization on the change in cash flow reporting classification, but a complementary relationship between board independence and firm-level auditor specialization. Further, both partner-level and firm-level auditor industry specializations have a complementary (but negative) relationship with board independence as to whether the firm is likely to report interest expense paid in the operating or financing activities sections. Practical implications An important implication is that knowing the levels of audit firm and partner specialization and how independent the board is, is useful for researchers and regulators in investigating auditor-client relationships and understanding the influences of variables investigated here on the outcome(s) of accounting policy and regulatory changes. Originality/value This study improved the field’s understanding of the impacts of audit partner and firm specialization, board independence and relevant interactions on cash flow reporting choices.

scholarly journals INDIAN CORPORATE FINANCIAL REPORTING SYSTEM: A STUDY ON THE CASH FLOWS OF SELECTED PRIVATE ENTERPRISES

2016 ◽  
Vol 4 (1) ◽  
pp. 35-42
Author(s):  
Santanu Kumar Das
Keyword(s):  
Cash Flow ◽  
Financial Reporting ◽  
Reporting System ◽  
Cash Flows ◽  
Annual Reports ◽  
Modern World ◽  
Private Enterprises ◽  
Narrative Reporting ◽  
Private Investors ◽  
Corporate Financial Reporting

Corporate financial reporting plays an important role in growing phenomenon of Privatization. The present study is based on the reports of Private Enterprises for three years. Findings revealed that the companies were presenting their annual reports. A privately owned enterprise refers to a commercial enterprise that is owned by private investors, shareholders or owners. The recent trend in financial reporting includes presentation and discloser of accounting aspect, corporate governance, corporate social responsibility and narrative reporting. The present paper will examine the cash flow statements of Maharastra Scooters Ltd., Tata Chemicals Ltd. and TVS Srichakra. In corporate financial reporting cash flow statement tells us the net cash flow activities, particularly its operating, investing and financial activities. These indications are helpful to analyze cash flow. This explains the sources and applications of liquidity of company. Keeping the importance of financial reporting in modern world the present paper attempts to analyzed and evaluate the financial reporting system in some selected units of private enterprises in India.

scholarly journals Raportowanie informacji niefinansowych w zakładach ubezpieczeń w Polsce

2017 ◽  
pp. 63-86
Author(s):  
Marzanna Lament
Keyword(s):  
Financial Reporting ◽  
Relevant Literature ◽  
Insurance Companies ◽  
Financial Reports ◽  
Academic Literature ◽  
Unique Nature ◽  
Fundamental Cause ◽  
The Subject ◽  
Qualitative Characteristics ◽  
Similar Sample

Raportowanie informacji niefinansowych w zakładach ubezpieczeń w Polsce This paper aims to show causes of non-financial reporting and to present conclusions from an evaluation of the extent and principles of this area of reporting with regard to the prevailing practice of companies in the Polish insurance market. The paper reviews literature of the subject and applicable regulations and uses the methods of deduction and induction, analysis of the contents of non-financial reports and the author's own observations. The initial part is a review of relevant literature concerning causes of nonfinancial reporting. The second section describes the unique nature of insurance companies as public trust organisations and its effects on management systems of insurers and qualitative characteristics of nonfinancial reports. Non-financial reports have been examined that were drafted in 2001–2015 by insurance companies operating in Poland as of 31 December 2015. Reports submitted to the GRI as reports from Poland and reports of parent entities have been studied. Image considerations have been found to be the fundamental cause of non-financial reporting. 48.2% of insurance companies produced reports although it was not mandatory at the time. No results of research using a similar sample have been found in academic literature.

scholarly journals A Logical Approach To The Statement Of Cash Flows

2014 ◽  
Vol 7 (4) ◽  
pp. 315-324
Author(s):  
Fred Petro ◽  
Farrell Gean
Keyword(s):  
Cash Flow ◽  
Financial Reporting ◽  
Financial Statements ◽  
Cash Flows ◽  
Indirect Approach ◽  
Logical Approach ◽  
Statement Of Cash Flows

Of the three financial statements in financial reporting, the Statement of Cash Flows (SCF) is perhaps the most challenging. The most difficult aspect of the SCF is in developing an understanding of how previous transactions are finalized in this document. The purpose of this paper is to logically explain the indirect approach of cash flow whereby an understanding is established together with the mechanics of preparing the statement.

scholarly journals Liquidity Analysis of Selected Public-Listed Companies in Malaysia

2015 ◽  
Vol 1 (1) ◽  
pp. 1 ◽  
Author(s):  
Carl B. McGowan ◽  
N. M. Baki Billah ◽  
Noor Azuddin Yakob
Keyword(s):  
Correlation Analysis ◽  
Cash Flow ◽  
Financial Reporting ◽  
Cash Flows ◽  
Consumer Products ◽  
Coverage Ratio ◽  
Empirical Results ◽  
Significant Difference ◽  
Statement Of Cash Flows ◽  
A Company

<p>The Statement of Cash Flows is a crucial part of financial reporting. Thus, cash flow ratios have drawn the attention of practitioners and academic researchers to use to evaluate the performance of a company. This study examines, over the three years (2010-2012) period, the liquidity position of selected companies from three prominent sectors (Consumer products, Industrial products and Trading/Services) of the Malaysian economy using cash flow statement ratios and traditional liquidity ratios suggested by various researchers. Traditional ratios were obtained from the Osiris database and cash flow ratios were calculated by using financial statements of selected companies. Traditional ratios examined were - current ratio, quick ratio, total asset to total liabilities ratio, and interest coverage ratio. Similarly, cash flow ratios examined were–operating cash flow ratio, critical needs cash coverage ratio, cash flow to total debt ratio, and cash interest coverage ratio. Correlation analysis was performed to investigate the strength of the relationship between traditional ratios and cash flow ratios. The empirical results of the correlation analysis show a statistically significant positive relationship between traditional ratios and cash flow ratios. Finally, pair t-tests results show that there is statistically significant difference between traditional ratios and cash flow ratios. The implication of the above empirical results suggests that traditional liquidity ratios should not be used solely for measuring liquidity since a company can have serious cash flow problems with positive liquidity ratios and increasing profits. Liquidity ratios developed using the statement of cash flows provide additional information or sometimes better insight on the financial strength or weakness of a company.</p>

scholarly journals An evaluation of the usefulness of cash flow ratios to predict financial distress

2007 ◽  
Vol 7 (1) ◽  
Author(s):  
L. Jooste
Keyword(s):  
Cash Flow ◽  
Financial Reporting ◽  
Financial Distress ◽  
Balance Sheet ◽  
Cash Flows ◽  
Mean Values ◽  
Additional Information ◽  
Financial Failure ◽  
Flow Information ◽  
Cash Flow Statement

Purpose: With the introduction of the cash flow statement it became an integral part of financial reporting. A need arose to develop ratios for the effective evaluation of cash flow information. This article investigates cash flow ratios suggested by various researchers and suggests a list of ratios with the potential to predict financial failure. Design: The cash flow ratios suggested by researchers, from as early as 1966, are investigated and eight cash flow ratios selected for inclusion in an analysis to predict financial failure. Ten failed entities are selected for a cash flow evaluation by means of the selected ratios for five years prior to failure. For a comparison, non-failed entities in similar sectors are selected and also evaluated by means of the cash flow ratios. The mean values of each ratio, for each year prior to failure, were then calculated and the means of the failed entities were compared to the non-failed entities. Findings: The comparison revealed that cash flow ratios have predictive value with the cash flow to total debt identified as the best indicator of failure. It was also determined that, although failed entities have lower cash flows than non-failed entities, they also had smaller reserves of liquid assets. Furthermore, they have less capacity to meet debt obligations and they tend to incur more debt. The ratios of the failed entities were unstable and fluctuated from one year to the next. Finally, bankruptcy could be predicted three years prior to financial failure. Implications: Income statement and balance sheet ratios are not enough to measure liquidity. An entity can have positive liquidity ratios and increasing profits, yet have serious cash flow problems. Ratios developed from the cash flow statement should supplement traditional accrual-based ratios to provide additional information on the financial strengths and weaknesses of an entity .

scholarly journals International Harmonisation Of Accounting Standards: The Case For A Mandatory Requirement For The Direct Method Of Reporting Operating Cash Flows

2011 ◽  
Vol 3 (3) ◽  
Author(s):  
Christine Yap
Keyword(s):  
New Zealand ◽  
Cash Flow ◽  
Financial Reporting ◽  
Indirect Method ◽  
Direct Method ◽  
Accounting Standards ◽  
Cash Flows ◽  
International Accounting ◽  
International Accounting Standards ◽  
Operating Cash Flows

Even though standard setters have now embraced cash flow statements there remains ambivalence as to the best format (i.e. direct or indirect method) for disclosing cash flow from operations. In 1987 the FASB asserted that information about the gross amounts of cash receipts and cash payments is more relevant than information about the net amounts of cash receipts and payments. Yet apart from Australia and New Zealand, most standard setting bodies, including the International Accounting Standards Board (IASB), permit a choice between the direct and indirect methods. When given this choice, the vast majority of companies have opted for the indirect method of reporting operating cash flows (OCFs).This difference in OCF presentation between jurisdictions is relevant in this era of harmonisation of accounting standards: both the European Union parliament and the Australian Financial Reporting Council have decided to set 2005 as the target date for the adoption of standards produced by the IASB. Underlying this policy of verbatim adoption of international accounting standards, presumably is the belief that adoption of standards issued by the IASB would lead to an improvement in financial reporting. Such a view was presented recently when current Australian accounting standards were criticised as being deplorable by the Chairman of the IASB, David Tweedie (Australian Financial Review, 5 August 2003, p.1). Yet by reviewing the literature on cash flow statements, this paper argues that not all Australian standards would be improved by adopting international standards. In the case of cash flow reporting, maybe the IASB should review its standard and accept the lead of Australia and New Zealand, by not permitting choice of method and mandate the direct method: surely an intended consequence of harmonisation is to narrow areas of difference and variety in accounting practice.

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