Cash Flows, Exit Prices and British Airways

Recent UK information content studies have provided evidence of a significant relationship between earnings and share prices, as in the US, but have also identified an apparent lack of information content for operating cash flow, which is in marked contrast to findings from US research. This paper provides direct evidence on the relationship between earnings, funds flows and cash flows in the UK during the period 1965-84, using tests of association and predictive tests based on a research methodology applied by Bowen, Burgstahler and Daley (1986) to US data. The results provide UK evidence on the contemporaneous and predictive relationships between measures of earnings, funds flows and cash flows which are generally consistent with the US findings of Bowen et al. and which do not support the view that earnings in the UK are superior to cash flows as predictors of future cash Rows.

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“…?See for example Lawson (1983 and, Ijiri (1978), Lee (1981 and, Egginton (1984 and, Clubb (1988) and Arnold and Wearing (1988).…”

Section: Variables and Data Setmentioning

confidence: 97%

The Relationship between Earnings, Funds Flows and Cash Flows: Evidence for the UK

Arnold

Clubb

Manson

et al. 1991

Accounting and Business Research

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“…A procedure for adjusting company financial information to a cash flow exit price (CaFE) basis has been described in Arnold and Wearing (1988). The adjustments required to allow for the particular circumstances of the banks (as financial institutions) are outlined below.…”

Section: Converting T H E Published Accounts To a Cash Flow Exit Pricmentioning

confidence: 99%

FINANCIAL REPORTING BY FOUR UK CLEARING BANKS: A CASH FLOW EXIT PRICE (CaFE) APPROACH

Wearing

1994

Business Fin & Account

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This paper examines the published accounts of the four main UK clearing banks during the 1980s and investigates some of the economic factors with which the banks had to contend. A particular focus concerns less developed country (LDC) debt, provisions against losses on the clearing banks’ LDC debt portfolios and factors which might influence the timing of provisions. We find a significant and positive association between share returns and future changes in cash flow plus adjustment for exit price changes, and suggest that this measure may be more closely associated with market expectations than changes in reported profit.

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“…Arnold and Wearing (1988) analyse the financial statements of British Airways in the decade prior to privatisation, and argue that accounting treatments were adopted 'to make the industry more saleable to the private sector.' In one year (to March 1982) the Income Statement showed £426m of extraordinary charges, mainly restructuring provisions and writedowns of fixed assets.…”

Section: Literature Reviewmentioning

confidence: 99%

Accounting for producer needs: The case of Britain's rail infrastructure

McCartney

Stittle

2015

Accounting Forum

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a b s t r a c tAcademic studies of the industries privatised in Britain since the mid-1980s have focused on regulation and performance. This paper discusses the impact of changes in accounting policies within the British railway industry, which has been almost completely neglected in the literature to date.The paper analyses the financial reporting of the railway infrastructure from 1992 to 2004: under state ownership, then as a listed company and finally as a 'not-for-dividend' entity. At each stage the accounting treatment of the infrastructure assets has been subject to major manipulation to suit the needs and convenience of the industry's managementnot the users.

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Cash Flows, Exit Prices and British Airways

Cited by 4 publications

References 15 publications

The Relationship between Earnings, Funds Flows and Cash Flows: Evidence for the UK

The Relationship between Earnings, Funds Flows and Cash Flows: Evidence for the UK

FINANCIAL REPORTING BY FOUR UK CLEARING BANKS: A CASH FLOW EXIT PRICE (CaFE) APPROACH

Accounting for producer needs: The case of Britain's rail infrastructure

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