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The persistence of current and proposed measures of operating cash flow

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  • Francis, Rick N.
  • Glandon, Sid
  • Olsen, Lori

Abstract

The measurement of operating cash flow using U.S. generally accepted accounting principles (GAAP) currently requires deductions for interest and income tax payments, and prohibits deductions for capital expenditures. In contrast, the IASB and the FASB are jointly proposing a new measure of operating cash flow which prohibits deductions for interest and income tax payments, and requires deductions for capital expenditures. This study compares the persistence of the current and proposed measures of operating cash flow, and the industry-specific results indicate that there is no significant difference between the persistence of the two measures for more than three-fourths of the industries in the sample. Moreover, the Boards’ constituents are recommending the use of a subtotal of operating cash flow prior to capital expenditures, and the results of this study suggest that this subtotal is more persistent for a limited number of industries than the current measure. Overall, the results of this study suggest that the predictive ability of operating cash flow will not change significantly for most industries.

Suggested Citation

  • Francis, Rick N. & Glandon, Sid & Olsen, Lori, 2013. "The persistence of current and proposed measures of operating cash flow," Research in Accounting Regulation, Elsevier, vol. 25(2), pages 157-168.
    • Handle: RePEc:eee:reacre:v:25:y:2013:i:2:p:157-168
    DOI: 10.1016/j.racreg.2013.08.004
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    References listed on IDEAS

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    Cited by:

    1. Bauman, Mark P. & Shaw, Kenneth W., 2016. "Harmonizing pension accounting: Income statement effects of applying IAS19R to U.S. firms," Research in Accounting Regulation, Elsevier, vol. 28(1), pages 1-10.
    2. Nugroho, Dwiyanjana Santyo & Pertiwi, Meilani Intan, 2021. "Stock Price Reaction when Covid -19 Exist: Moderating by Firm’s Operating Cash Flow," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 55(1), pages 71-85.

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