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Most studies of the investment-cash flow sensitivity hypothesis in the literature compare estimates of the sensitivity coefficients from cross sectional regressions across groups of firms classified into more or less financially constrained groups based on some measure of perceived financial constraint. These studies report conflicting results depending on the classification scheme used to stratify the sample. They have been criticized on conceptual and methodological grounds. In this study we mitigate some of these problems reported in the literature by using the insights from Cleary, Povel and Raith (2007) in a new research design. We test for the significances of the changes in the investment-cash flow sensitivity, in a time-series rather than cross sectional framework, for the same set of firms surrounding an exogenous shock to the firms' information asymmetry. The CPR (2007) model predicts an unambiguous increase (decrease) in investment-cash flow sensitivity when information asymmetry of the firm increases (decreases). Further, by examining the differences in the sensitivity coefficients we expect some of the biases in the coefficient from measurement errors in Q to cancel out. The two events we study are (i) the implementation of SOX which is expected to decrease information asymmetry from improved and increased disclosure and (ii) the deregulation of industries which is expected to increase information asymmetry largely from the lifting of price controls and entry barriers. We report that information asymmetry decreases following SOX and that there is a commensurate decrease in the investment-cash flow sensitivity, pre- to post SOX. The hypothesis that a greater change in investment cash flow sensitivity is associated with a greater change in information asymmetry is only weakly supported by the data. We also report that information asymmetry increases following deregulation with a commensurate increase in investment cash flow sensitivity, pre to post deregulation. The hypothesis of a greater increase in the sensitivity for subsamples with a greater increase in information asymmetry is not supported by the data. Overall, however, the study supports the investment-cash flow sensitivity hypothesis using a research design that corrects for some of the problems identified in the existing literature on the hypothesis. / Ph. D.

The purpose of this study was to compare the effectiveness of the current ratio and the cash conversion cycle in evaluating working capital cash flows from a diagnostic and a predictive aspect.The author analyzed two case studies. Each company was reviewed over a five-year period. For each company the writer calculated the annual current ratio and the cash conversion cycle and examined the trends over the five-year periods under review.Results of these analyses indicated that the cash conversion cycle was more effective than the current ratio in diagnosing the health of each company’s working capital cash flows. The cash conversion cycle also signaled a change in liquidity earlier than the current ratio, suggesting that the former had more effective predictive capabilities than the latter. The central implication of these findings is that the cash conversion cycle might be a more useful diagnostic and predictive tool than the current ratio in liquidity analysis.The research findings were also consistent with improvement or deterioration in each company’s underlying strategic performance as measured by critical changes in its competitive position at the same point in time as the cash conversion cycle trend shifted.These results suggest that the cash conversion cycle may provide insights into the impact of planned product-market strategy on shareholder value.

One of the fundamental premises of financial reporting by business enterprises is that it should provide users with information that will assist them in predicting the amounts, timing and uncertainty of future cash flows of the enterprise. The requirement for alternative income measurements was partially justified by an assumed correspondence between the new information and the cash flow prediction objective. The existence of that correspondence, however, has not been precisely verified by the research to date. The overall objective of this research was to contribute additional evidence to address conflicts in the prior research findings, and additionally, to consider possible industry and firm-size effects on the ability to predict cash flow from alternative incomes. A data base was compiled from COMPUSTAT tapes (historical cost), the Parker model restatement procedures (general price-level) and the Easman data base that used the Falkenstein-Weil restatement model (replacement cost). One conclusion was that the alternative income measurements produce different cash flow forecast errors. Overall, historical cost net income produced the lowest forecast errors for two approximations of cash flow. The inclusion of monetary gains/losses and holding gains/losses in net income did not improve predictions, and in one case worsened them. Another conclusion was that a multiple linear regression model produced significantly lower forecast errors for both cash flow definitions. The simple linear and exponential regression prediction models did not produce different forecast errors. Finally, both an industry effect and a firm-size effect were identified in the prediction of working capital from operations. When net income plus depreciation was the object of prediction, an industry effect was identified but not a firm-size effect. The overall impact of these findings is that the alternative income measurements should be justified on some basis other than facilitating cash flow prediction. In fact, a random-walk cash flow prediction model performed better than any prediction based on net income. Financial accounting standards in the area of alternative income measurements should consider possible industry and firm-size differences. The choice of cash flow definition is apparently critical because different conclusions were obtained. / Ph. D.

Thesis (MBA)--Stellenbosch University, 2001. / ENGLISH ABSTRACT: Users of Cash Flow Statements expect the information provided as cash flow from operating and investing activities to serve as a possible indicator that the company is facing bankruptcy. Traditionally, companies disclose depreciation as an operating activity and replacement of fixed assets as an investing activity. Companies that direct cash payments toward dividend and future expansion without addressing replacement of fixed assets are creating an unrealistic picture of their operating and investing activities. Generally accepted accounting practices (GAAP) have limited its disclosure requirements and has not addressed the issue of separating the expansion of fixed assets from replacement. This mini-study project researches the impact of disclosing depreciation as an investing activity and the replacement of fixed assets as an operating activity. Based on the findings, it is recommended that GAAP make it a requirement that the replacement and expansion of fixed assets be disclosed separately. It is further recommended that either depreciation be disclosed as an investing activity, or that replacement of fixed assets be disclosed as an operating activity on the Cash Flow Statement. The methods of disclosure investigated in the study will lead to an improvement in the ability of the two activities to serve as possible early indicators of bankruptcy. / AFRIKAANSE OPSOMMING: Gebruikers van kontantvloeistate verwag dat die inligting wat verskaf word van die bedryfs- en investeringsaktiwiteite as 'n moontlike indikator van die ondergang van die onderneming moet kan dien. Waardevermindering word tradisioneel as 'n bedryfsaktiwiteit openbaar, terwyl die vervanging van vaste bates as 'n investeringsaktiwiteit openbaar word. Ondernemings wat direkte kontantbetalings as dividende en toekomstige uitbreiding openbaar sonder dat die vervanging van vaste bates aangespreek word, skep 'n onrealistiese beeld van hul bedryfs- en investeringsaktiwiteite. Algemeen aanvaarde rekeningkundige beginsels het die openbaarmakingsvereistes beperk en spreek nie die skeiding tussen uitbreiding van bates en die vervanging daarvan aan nie. Hierdie mini-werkstuk ondersoek die impak van die openbaarmaking van waardevermindering as 'n investeringsaktiwiteit en vervanging van vaste bates as 'n bedryfsaktiwiteit. Gebaseer op die bevindinge word daar aanbeveel dat die algemeen aanvaarde rekeningkundige beginsels dit 'n vereiste maak dat die vervanging en uitbreiding van vaste bates apart openbaar word. Verder word aanbeveel dat waardevermindering as 'n investeringsaktiwiteit of vervanging van vaste bates as 'n bedryfsaktiwiteit in die kontantvloeistaat openbaar word.

The thesis Valuation of TŘINECKÉ ŽELEZÁRNY, a. s. briefly explains the principals of business valuation and the methods used. In the theoretical part the main emphasis is put on the methods and approaches used in valuation of TŘINECKÉ ŽELEZÁRNY, a. s. Practical part describes the valuation of TŘINECKÉ ŽELEZÁRNY, a. s. The financial analysis mainly assesses the principals of going concern, financial health of a company and then proposes the changes in the structure of assets and liabilities, which could improve the profitability of a company. The financial analysis is based on both horizontal and vertical analysis of financial statements and also on index ratios. The strategic analysis examines the company's environment and its influence on society. The analysis is performed by using SWOT and PEST analysis and Porter model of five competitive forces. Financial plan follows financial and strategic analysis and works with the predicted results of a company in the future. The results of the financial plan are used for achieving of free cash value and business valuation thanks to the model of discounted cash flow.

Theoretical part: the users of financial analysis, methods and tools of financial analysis. Practical part: the branch characterization, analysis of absolute parameters, differential analysis, cash flow analysis, financial ratios analysis, Du Pontova analysis, inequality, economic standard, Altman index, IN99, IN01, EVA.

This work considers question of buying a residential property for renting it in comparison to a fictitious financial instrument by a retail investors. The financial instrument is the only alternative investment possibility to a retail investor.

Cash flow prediction is involved in a number of economic decisions, particularly in investment. Previous research conducted in the United States has provided inconsistency in the results of investigating accounting data, cash flow and accrual accounting data in predicting future cash flows. No published research has studied cash flow prediction in Thailand. The current study investigates the ability of accrual and cash flows accounting data to predict future cash flows of Thai listed companies. Three regression models are constructed namely earnings, cash flows, accrual components and cash flows models. In addition, cash flow ratios are investigated to predict future cash flows by using a stepwise regression. Data used in this study is collected from the financial statements of non-financial companies listed on the Stock Exchange of Thailand from 1994 to 2002. Cash flow data are selected directly from the cash flow statements. The empirical results show that past earnings, cash flows, cash flow and accrual component of earnings can be used to predict future cash flows of Thai listed companies and cash flows have better predictive power than past earnings. Additionally, the cash flow model and the cash flow and accrual components of earnings model have better predictive power than the earnings model. The findings of testing the models in an out-of-sample period suggest that the cash flow model is a better predictor of future cash flows than the other models. Furthermore, additional year lags of accounting data can improve the predictive power of the model. However, the results indicate that cash flow ratios are not a good predictor of future cash flows. In addition, this study finds that the Asian economic crisis had an impact on the predictive power of accounting data.