Accruals and the naïve out-of-sample prediction of operating cash flow

Francis, Rick N.; Eason, Patricia

doi:10.1016/j.adiac.2012.09.004

Cited by 10 publications

(15 citation statements)

References 26 publications

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“…Consistent with the studies of Francis and Eason (2012), Krishnan and Largay III (2000), Burgstahler and Dichev (1997), Kim and Kross (2005), Lorek and Willinger (2009), and Lev et al (2010), to compare the forecast accuracy of alternative models, we use a variety of measures such as the APFE, SMAPE, adjusted…”

Section: Prediction Error Testsmentioning

confidence: 99%

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The usefulness of the double entry constraint for predicting earnings

Khansalar

Kashefi-Pour

2018

Rev Quant Finan Acc

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In the absence of an income statement, earnings can be calculated as cash flow from operating activities (CFO) plus accruals, rather than being stated as the difference between income statement revenues and expenses. Following the study by Christodoulou and McLeay (2014), this paper uses a system of structural regressions with a framework of two simultaneous linear models, allowing the most basic property of accountingdouble entry bookkeepingto be incorporated as a constraint. The paper aims to investigate whether the constrained seemingly unrelated regression (SUR) estimator with two simultaneous models, produces lower out-of-sample prediction errors than each standalone model. We also examine if CFO and accruals are more capable of predicting future earnings than income statement earnings and expenses. Our findings show that in predicting earnings: (1) a system of structural regressions with two constrained simultaneous models produces significantly smaller out-of-sample prediction errors than each separate regression; and (2) accruals and CFO produce smaller out-of-sample prediction errors than earnings and expenses.

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Section: Prediction Error Testsmentioning

confidence: 99%

“…Furthermore, levels-type measurements fail to create the (0,1) boundaries intended by Theil (1966). Francis and Eason (2012) introduced an alternative forecast metric that uses Theil's (1966) U-statistic with explicit indicators for change variables:…”

Section: Prediction Error Testsmentioning

confidence: 99%

The usefulness of the double entry constraint for predicting earnings

Khansalar

Kashefi-Pour

2018

Rev Quant Finan Acc

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“…The effect of debt on future operating cash flow is apparent when the company pays off debt in the past, and the repayment can indicate the company's cash flow, so the change in debt will reflect the cash flow of future operating activities. According to Ratnawati [8], Francis [12], Hidayati [11], and Yuwana [13], states that changes in debt have a positive effect on the cash flow of future operating activities. While other researchers Masnah [9] and Binilang [10] state that changes in debt have no effect on future operating cash flows.…”

Section: Introductionmentioning

confidence: 99%

“…The more sales, it will increase revenue and the sooner the costs previously incurred will be charged, and the revenue generated by sales can increase future cash inflows [14]. According to Sulistyawan [15], Francis [12] and Jemaa [16], states that changes in inventories have a positive effect on the cash flow of future operating activities. Meanwhile according to Ratnawati [8] and Hidayati [11], states that changes in inventories negatively affect the cash flow of future operating activities.…”

Section: Introductionmentioning

confidence: 99%

Alteration Of Net Profit, Debt, Inventory And Depreciation Cost On Future Operating Cash Flows

Azizah¹,

Indriyaningsih²

2022

Proceedings of the 3rd International Conference of Business, Accounting, and Economics, ICBAE 2022, 10-11 August 2022, Purwoker

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This aim of this study is to analyze the effect of net income, changes in debt, inventory, and depreciation expense on cash flows for future operating activities as the dependent variable. The model in this research follow the signaling theory assumption to develop the hypothesis. This is kualitatif research and use purposive sampling technique to analyse the data, and calculated by multiple regression with SPSS. The Sample are companies listed in the LQ45 Index on BEI (Indonesia Stock Exchange) for six years. The results of this study found that net income, changes in debt and depreciation expense have positive effect, while changes in inventory have a negative effect on cash flows in future operating activities. This findings confirm all of signalling theory assumption and contribute to the financial practice in the similar companies. The companies should consider their financial condition to predict their future operational cash flow as management decision process.

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“…Dechow et al (1998) proposed a model of earnings, cash flows and accruals by assuming a random walk sales process, variable and fixed costs, and that the only accruals were accounts receivable and payable, and inventory. Francis and Eason (2012) investigated the relationship between accruals and the naïve out-of-sample prediction of operating cash flow. Edmonds et al (2011) investigated the effect of meeting or beating analysts' operating cash flow forecasts on a firm's cost of debt.…”

Section: Introductionmentioning

confidence: 99%

A study on relationship between capital employed efficiency and operating cash flow: Evidence from Tehran Stock Exchange

Hassani¹,

Misaghi²

2013

10.5267/j.msl

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Capital employed efficiency is one of the intellectual capital components based on value added intellectual capital model. It is calculated by dividing value added on capital employed. Operational cash flow is made from operating activities. It is expected that created value added from capital employed could make more operational cash flow. This paper investigates the relationship between capital employed efficiency and operating cash flow. To test this hypothesis, data has been collected from a sample of 161 firms in Tehran Stock Exchange over the period [2008][2009][2010][2011][2012]. Results show that there is a positive and significant relationship between capital employed efficiency and operational cash flow. In other words, more cash flow from operational is created through increasing the amount of value added based on capital employed.

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Accruals and the naïve out-of-sample prediction of operating cash flow

Cited by 10 publications

References 26 publications

The usefulness of the double entry constraint for predicting earnings

The usefulness of the double entry constraint for predicting earnings

Alteration Of Net Profit, Debt, Inventory And Depreciation Cost On Future Operating Cash Flows

A study on relationship between capital employed efficiency and operating cash flow: Evidence from Tehran Stock Exchange

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