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THE ACCURACY OF CASH FLOW ESTIMATION PROCEDURES
Author(s) -
Austin Lloyd M.,
Bradbury Michael E.
Publication year - 1995
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/j.1467-629x.1995.tb00277.x
Subject(s) - cash flow , currency , operating cash flow , terminal value , econometrics , cash , cash flow forecasting , cash flow statement , estimation , cash on cash return , cash and cash equivalents , business , economics , monetary economics , finance , management
Prior research uses mechanical procedures to estimate cash flow data. This study examines the accuracy of these procedures by measuring errors between estimated cash flows and reported cash flows. The results indicate that mechanical rules provide poor estimates for reported cash flows. We also show that the errors between cash flow estimates and reported cash flows can be reduced by adjustments made from footnote disclosures. However, large errors remain, even after adjustments are made from footnote disclosures. These remaining errors are correlated with firm specific characteristics such as sales (firm size), extraordinary items, foreign currency gains and losses, and changes in inventory.