Accruals and the Prediction of Future Cash Flows
Building on the Dechow, Kothari, and Watts (1998) model of the accrual process, this study provides insights into the role of accruals in predicting future cash flows. The model shows that each accrual component reflects different information relating to future cash flows; aggregate earnings masks this information. As predicted, disaggregating accruals into major components - change in accounts receivable, change in accounts payable, change in inventory, depreciation, amortization, and other accruals - significantly enhances predictive ability. Each accrual component, including depreciation and amortization, is significant with the predicted sign in predicting future cash flows incremental to current cash flow. The cash flow and accrual components of current earnings have substantially more predictive ability for future cash flows than several lags of aggregate earnings. The inferences are robust to several alternative specifications, including controlling for operating cash cycle and industry membership.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||Jan 2001|
|Date of revision:|
|Contact details of provider:|| Postal: Stanford University, Stanford, CA 94305-5015|
Phone: (650) 723-2146
Web page: http://gsbapps.stanford.edu/researchpapers/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:ecl:stabus:1594r. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.