A Caveat on Measuring Cash Flow and Solvency

Gombola, Michael; Ketz, J. Edward

doi:10.2469/faj.v39.n5.66

Cited by 10 publications

(6 citation statements)

References 0 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…However, through increasing the information asymmetry, cash flow criteria are more related in explaining the performance of capital market. The results of this research are different from the results of researches conducted by Gombola and Ketz (1983), Easton et al (1992), Haw et al (2001), Arab Mazar Yazdi et al (2006 and Foroghi and Mazaheri (2009), because they show that accounting earnings contain more information content than cash flow.…”

Section: Resultscontrasting

confidence: 99%

“…In fact, in this study, we investigate the relationship between earnings and operating cash flows and stock return, and then we test this relationship under the condition of information asymmetry to find that which has a stronger relationship with shareholders' return. The Related Empirical Research Gombola and Ketz (1983) investigated the relationship between the numbers of accrual earnings and cash flows in their research. Their results indicated that cash flows lack information importance in comparison to accounting earnings.…”

Section: Theoretical Foundations Of the Studymentioning

confidence: 99%

See 1 more Smart Citation

The Relationship between Earnings before Interest and Taxes and Operating Cash Flow and Stock Return under the Condition of Information Asymmetry in Abadan and Arak Petrochemical Companies through Markov-Switching Approach

Masihabadi¹,

Moghaddam²,

Kulukhi³

et al. 2015

MBR

View full text Add to dashboard Cite

This research investigated the relationship between earnings before interest and taxes and operating cash flow and shareholders' return in Abadan and Arak Petrochemical Companies. This relationship was tested under the condition of information asymmetry. Nonlinear Markov-Switching approach was adopted to test the hypotheses. The results of empirical tests through the data in 2001-2010 indicated that in Arak Petrochemical Company, both variables of earnings before interest and taxes and operating cash flow had significant relationship with stock return of company. However, in Abadan Petrochemical Company, only the variable of earnings before interest and taxes had significant and positive relationship with stock return of company. Increase in information asymmetry showed that variable of operating cash flow had a stronger relationship with stock return of companies than the variable of earnings before interest and taxes. In other words, under the condition of information asymmetry, cash flow variables had higher correlation with stock return of companies than accrual variables.

show abstract

Section: Resultscontrasting

confidence: 99%

Section: Theoretical Foundations Of the Studymentioning

confidence: 99%

The Relationship between Earnings before Interest and Taxes and Operating Cash Flow and Stock Return under the Condition of Information Asymmetry in Abadan and Arak Petrochemical Companies through Markov-Switching Approach

Masihabadi¹,

Moghaddam²,

Kulukhi³

et al. 2015

MBR

View full text Add to dashboard Cite

show abstract

“…In other words, earning before tax and interest had higher information content compared with operational cash flows. The results are consistent with findings of Gombola and Ketz (1983), Easton et al (1992), Haw et al (2001) who confirmed that accounting earning had higher information content than cash flows. The study of Rapp (2010 shows that accounting earning contained higher information content than cash flows.…”

Section: Resultssupporting

confidence: 91%

“…Then, this relationship is examined in the conditions of information asymmetry to see which one has stronger correlation with stockholders' return. Gombola and Ketz (1983) studied the relationship between earnings of accruals and operational cash flows. They concluded that cash flows had not had important information compared with accounting earnings.…”

Section: Introductionmentioning

confidence: 99%

A study on relationship between earnings before tax, interest and operational cash flows with stockholders’ equity

Torghabeh¹,

Parsian²,

Kolookhi³

2014

10.5267/j.msl

View full text Add to dashboard Cite

One of the primary economic issues is associated with optimum resource allocation in profitable investments with reasonable risk. For this purpose, performance measurement's criteria are needed some of which emphasize cash flow variables and some others focus on information content of accounting profit. On this basis, this study examines the relationship between earnings before tax and interest and operational cash flows with stockholders' return in Tehran Stock Exchange (TSE). In this regard, information asymmetry was also examined. To test hypotheses, multivariable regression and combined data method were used. The results showed that based on the information of 102 companies in stock market from 2004 to 2009, there was a positive and significant correlation between earnings before interest and tax and stock return in the companies. While, operational cash flow has no significant impact on stock return. Increasing information asymmetry, earnings before interest and tax has a positive and significant correlation with stockholders 'return; but operational cash flow has no significant effect on stockholders' return. In other words, earnings before interest and tax have higher information content than operational cash flow.

show abstract

“…The results confirmed Beaver's own findings concerning the predictive ability of cash flow/total liabilities, both alone and in combination with other ratios. Gombola and Ketz (1983); Kochanek and Norgaard (1988); Largay and Stickey (1980) presented companies with positive net profits, positive working capital, positive operating current assets, but with highly fluctuating and clearly insufficient operating current cash flows. This went on for various consecutive years before these businesses went bankrupt.…”

Section: Literature Reviewmentioning

confidence: 99%

Analysis of the cash flow statement’s usefulness: an empirical study

Arimany¹,

Viladecans²

2015

Eur. Account. Manag. Rev.

View full text Add to dashboard Cite

The basic purpose of this research is to determine the relevance of the cash flow statement (CFS), also known as statement of cash flows, for analysing a company's financial statements. This has been done by means of an empirical study, showing that, in order to undertake a comprehensive analysis of the company's equity, economic and financial situation, it is essential to study and analyse the CFS. An experimental study was carried out with students taking a Business Management and Administration degree at Universitat de Vic as well as students on the Accounting and Finance course at Universitat Autònoma de Barcelona, using data from the retail company Mercadona S.A. The ensuing conclusions allow us to state that the CFS is an indispensable document when it comes to undertaking a comprehensive analysis of the company's financial statements, given that it provides very useful information concerning the company's short-term financial situation and its investment and financing activity.

show abstract

A Caveat on Measuring Cash Flow and Solvency

Cited by 10 publications

References 0 publications

The Relationship between Earnings before Interest and Taxes and Operating Cash Flow and Stock Return under the Condition of Information Asymmetry in Abadan and Arak Petrochemical Companies through Markov-Switching Approach

The Relationship between Earnings before Interest and Taxes and Operating Cash Flow and Stock Return under the Condition of Information Asymmetry in Abadan and Arak Petrochemical Companies through Markov-Switching Approach

A study on relationship between earnings before tax, interest and operational cash flows with stockholders’ equity

Analysis of the cash flow statement’s usefulness: an empirical study

Contact Info

Product

Resources

About