Implications of Accruals and Growth on Predicting Future Profitability and Market Mispricing
In contrast to cash flow, the growth in long-term net operating assets and accruals display a lower degree of persistence in their capacity to gauge future earnings performance. This disparity can be attributed to their differential impact on the denominator of one-year-a...
Cash Flows: A Better Indicator of Future Profitability
The argument over which metric, cash flows or earnings, better predict profitability has been ongoing for years. A recent study by Foerster, Tsagarelis, and Wang, looked at the mixed evidence and attempted to answer two questions using S&P 1500 from 1994 to 2013: (1) ...