Are earnings better than cash flows at predicting future cash flows? Evidence from apples-to-apples comparisons

• 成果类型: Article
• 署名作者: Casey, Ryan J.; Ruch, George W.
• 署名单位: University of Denver
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-023-09805-5
• 发表日期: 2024
• 页码: 3218-3257
• 关键词: accruals; GAAP; persistence; performance; INFORMATION; ability; EBITDA

摘要

We compare the abilities of earnings and cash flows to predict future cash flows. We take a novel approach in that we perform apples-to-apples comparisons of five earnings components measured on an accrual basis with their equivalents measured on a cash basis. On the one hand, we find that the operating profit component (sales net of cost of goods sold and SG&A expense) outperforms its cash-basis equivalent in predicting future cash flows. On the other hand, we find that the depreciation expense and non-operating income components underperform their cash-basis equivalents in predicting future cash flows. Additionally, we fail to find significant differences between the predictive abilities of the interest expense and income tax expense components and their cash-basis equivalents. The inconsistent findings across earnings components suggest that unequivocal all-or-nothing conclusions on the relative predictive abilities of earnings and cash flows are unwarranted.