Predicting Stock Returns and Enhancing Portfolio Performance with Cash-based Operating Profitability
Investors have long sought to identify reliable predictors of stock returns to maximize their investment performance. One area of interest has been the role of accounting measures such as accruals, cash flows, and operating profitability in predicting cross-sectional stoc...
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) ...