A simple model of earnings, cash flows and accruals is developed by assuming a random walk sales process, variable and fixed costs, accounts receivable and payable, and inventory and applying the accounting process. The model implies earnings better predicts future operating cash flows than does current operating cash flows and the difference varies with the operating cash cycle. Also, the model is used to predict serial and cross-correlations of each firm's series. The implications and predictions are tested on a 1337 firm sample over 1963-1992. Both earnings/cash flow forecast implications and correlation predictions are generally consistent with the data.
Building on the Dechow et al. (1998) model of the accrual process, this study investigates the role of accruals in predicting future cash flows. The model shows that each accrua...
Prior research reveals that the accrual component of profitability is less persistent than the cash flow component, and that investors fail to fully appreciate their differing i...
The relative association of operating cash flows and accounting earnings with security returns is addressed in several research papers. Any information that earnings provide abo...
This paper examines the impact of measuring accruals as the change in successive balance sheet accounts, as opposed to measuring accruals directly from the statement of cash flo...
In this study we specify a simple earnings model, present managerial discretion hypotheses from existing literature, and assume efficient markets in order to evaluate five discr...
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