Showing papers on "Cash flow forecasting published in 1997"

The Determinants and Implications of Corporate Cash Holdings

Abstract: We examine the determinants and implications of holdings of cash and marketable" securities by publicly traded U.S. firms in the 1971-1994 period. Firms with strong growth" opportunities and riskier cash flows hold relatively high ratios of cash to total assets. Firms" that have the greatest access to the capital markets (e.g. large firms and those with credit" ratings) tend to hold lower ratios of cash to total assets. These results are consistent with the" view that firms hold liquid assets to ensure that they will be able to keep investing when cash" flow is too low relative to planned investment and when outside funds are expensive. The" short run impact of excess cash on capital expenditures, acquisition spending and payouts to" shareholders is small. The main reason that firms experience large changes in excess cash is" the occurrence of operating losses. There is no evidence that risk management and cash" holdings are substitutes.

Cash Flow and Capital Spending: Evidence from Capital Expenditure Announcements

Abstract: Pecking-order and free-cash-flow behavior are two explanations for the reliance of US corporations on cash flow from operations to finance capital expenditures. However, each explanation has different implications for financial management; cash flow hoarding for the former and cash flow payout for the latter. The empirical findings in this article suggest that firm size plays a significant role in determining appropriate financial policy for corporations.

Interest Rate Risk Management

Abstract: This paper surveys the main concepts and techniques of recent developments in the modeling of the term structure of interest rates that are used in the risk management and valuation of interest-rate-dependent cash flows. These developments extend the concepts of immunization and matching to a stochastic interest rate environment. Such cash flows include the cash flows on assets such as bonds and mortgage-backed securities as well as those for annuity products, life insurance products with interest-rate-sensitive withdrawals, accrued liabilities for defined-benefit pension funds, and property and casualty liability cash flows.

Marketable Incentive Contracts and Capital Structure Relevance

Abstract: This article investigates the claim that debt finance can increase firm value by curtailing managers' access to "free cash flow." We first show that incentive contracts that tie the managers' pay to stockholder wealth are often a superior solution to the free cash flow problem. We then consider the possibility that the manager can trade on secondary capital markets. Liquid secondary markets are shown to undermine management incentive schemes and, in many cases, to restore the value of debt finance in controlling the free cash flow problem. THE FUNDAMENTAL INSIGHT OF the agency approach to corporate finance is that a firm's financial structure affects real decisions. While there is little doubt that financial policies have a variety of real effects, some classic agency models have recently been criticized for failing to allow management compensation to be jointly determined along with the firm's financial structure.1 The force of this critique is highlighted by analyses such as Dybvig and Zender (1991) and John and John (1993) in which management incentive contracts completely sever the link between a firm's real and financial policies, so that capital structure is either irrelevant or is determined solely by factors such as taxes. Management incentive schemes lead to capital structure irrelevance by motivating executives to make choices that maximize total firm value, regardless of the structure of claims on its cash-flows. Persons (1994) shows that this commitment role is undermined if shareholders are able to renegotiate man

Users' perceptions of the need for cash flow statements — Australian evidence

Abstract: Professional accounting bodies have endorsed claims of the need for cash flow information through their issuance of Standards on cash flow statements. Few empirical studies have tested the extent to which decision-makers actually use cash flow information. Whilst market-based studies have tested the reaction of the stock market to the release of cash flow information, they have not established the usefulness of cash flow information to financial statement users. Such a study is important not just for the signals it gives to regulators, but also by virtue of the importance those signals have for the preparers of accounting information. The academic and professional literature, identify four possible contributing factors of demand for cash flow information: (i) the limitations of conventional accrual accounting, (ii) dissatisfaction with the funds statement, (iii) relevance for users' decisions, and (iv) changes in the reporting environment. To determine the extent to which investors and creditors agreed wi...

The role of cash flows and accruals in explaining security returns: evidence for the UK

Abstract: The assessment of earnings usefulness in returns studies has been at the forefront of accounting research since the seminal work of Ball and Brown (1968). Recently, regulatory bodies worldwide have paid increased attention to cash flow reporting. Empirical research provides evidence that earnings information dominates cash flows in market-based accounting research. This study extends the growing empirical literature on the association of earnings and cash flows with security returns. We hypothesize that the association of cash flows with security returns improves (i) the smaller the absolute magnitude of aggregate accruals, (ii) the longer the measurement interval and (iii) the shorter the firm's operating cycle. The dataset consists of all UK firms included in the Global vantage database for the period 1984–1992. This study provides evidence that cash flows play a more important role in the marketplace when the operating cycle, magnitude of accruals and the measurement interval are taken into considerati...

Information Provided by Accrual and Cash-Flow Measures of Operating Activities

Abstract: This article examines accrual and cash-flow measures useful for observing companies' financing, investing and operating activities. It addresses the information provided jointly by income and operating cash flow, and reveals that information provided by these accounting measures is dependent on their relative magnitudes. A consistent pattern of income in excess of operating cash flow, with both measures appropriately adjusted and scaled, indicates superior company growth. Income and cash-flow patterns are associated significantly with various company financing, investing and operating attributes. Empirical tests confirm that both income and operating cash flow are important for observing company performance and prospects when considered jointly and when interpreted with respect to accounting measurement theory. At least for many companies, the results do not support the conventional wisdoms that accounting measures of income and operating cash flow converge over long periods of time and that earnings provide a reliable basis for cash-flow prediction.

European corporate customers’ choice of domestic cash management banks

Abstract: Provides evidence of the criteria for the choice of domestic cash management banks adopted by large European firms. A questionnaire completed by 1,129 corporate customers from 20 European countries indicates that service quality is the most important criterion for choice of domestic cash management banking, followed by pricing and relationship. Using the empirical findings, discusses the appropriateness of relationship‐oriented and transaction‐oriented bank strategies across Europe. Based on the customers’ ranking of choice criteria finds no evidence of widespread successful implementation of relationship banking in Europe.

Determinants of Intercorporate Shareholdings

Abstract: This paper examines why firms choose to spend resources on acquiring ownership rights in other firms. Based on a unique data base of every individual intercorporate shareholding on the Oslo Stock Exchange during the period 1980-1994, we find that such investments serve at least three functions. First, they play a role in corporate governance, as managers in firms with low insider holdings, diffuse ownership structure, and high free cash flow tend to mutually acquire equity stakes in each other, possibly in a collective attempt to protect their human capital in the market for corporate control. Second, interfi rm equity holdings serve as financial slack for growing firms, reducing potential adverse selection costs by providing an internal funding source for new investments in long-term assets. Finally, our findings also suggest that intercorporate shareholdings are an integrated part of the investor's cash flow management system by being a liquidity buff er when cash inflows and cash outflows are non-synchronous.

The relationship between cash flow and investment in the United States at business cycle frequencies

Abstract: (1997). The relationship between cash flow and investment in the United States at business cycle frequencies. Applied Economics: Vol. 29, No. 10, pp. 1283-1293.

Determinants of Intercorporate Shareholdings

Abstract: This paper examines why firms choose to spend resources on acquiring ownership rights in other firms. Based on a unique data base of every individual intercorporate shareholding on the Oslo Stock Exchange during the period 1980-1994, we find that such investments serve at least three functions. First, they play a role incorporate governance, as managers in firms with low insider holdings, diffuse ownership structure and high free cash flow tend to mutually acquire equity stakes in each other, possibly in a collective attempt to protect their human capital in the market for corporate control. Second, interfirm equity holdings serve as financial slack for growing firms, reducing potential adverse selection costs by providing an internal funding source for new investments in long-term assets. Finally, our findings also suggest that intercorporate shareholdings are an integrated part of the investor's cash flow management system by being a liquidity buffer when cash inflows and cash outflows are non-synchronous.

Small firm finance : an entrepreneurial perspective

Abstract: Introduction: What Is a Small Business? The Need for Personal Guarantees. Small Business and Entrepreneurial Activity. Forms of Small Business. The Objectives of a Small Business. Financial Statements: The Income Statement and Balance Sheet: Introduction to Financial Reporting. The Income Statement. The Balance Sheet. Financial Statements: Conventions and Cash Flows: The Terminology and Process of Accounting. The Nature of Book Values. Working Capital and Cash Flows. Other Reports. Performance Analysis: Introduction to Measuring Performance. Structural, Interstatement and Trend Analysis. Short Term Solvency Ratios. Activity Ratios. Financial Structural Ratios. Profitability Ratios. Valuation Measures. Financial Leverage. Risk. Performance - The Critical Elements. Financial Planning: Introduction. Breakeven Analysis. The Nature of Risk. Budgeting. Growth and Failure: The Business Life Cycle. Budgeting with Prior Information. Budgeting Without Prior Information. Budgeting: The Percent of Sales Technique. Sourcing Extra Funds Needed. Capital: Introduction. Terms and Concepts Related to Working Capital. Cash Management. Managing Accounts Receivable. Inventory Management. Liabilities. Long Term Asset Decisions: Introduction. Capital Budgeting. The Investment Process and the Capital Budget. Project Evaluation. Time Value of Money. Cash Flows. The Discount Factor. Financial Investment Evaluation: Introduction. Investment Techniques Ignoring the Time Value of Money. Time Value Techniques. Difficulties with DCF Techniques. Risk Revisited. Post Audit Evaluation. Obtaining Funds. Introduction. Sources of Equity. Quasi-Equity. Sources of Debt. Dealing with a Banker. Leasing. The Capital Structure Decision. The Complication of Dividend Policy. Business Valuation: Introduction. The Economic Basis for Valuation. The Role of Comparables. General Factors Influencing Value. Methods of Valuation. Steps in the Valuation Process. Types of Valuation. The Valuation Equality and Goodwill. The Minority Discount and the Control Premium. Financial Aspects of International Trade. Introduction. International Business Risk Management. International Trade Documentation. Foreign Exchange. The Foreign Exchange Markets. Hedging as a Risk Reduction Strategy. The Economics of Foreign Exchange. Sources of Finance. Alternative Methods of Financing. Cash Flow Management. Finance and the Entrepreneur. Entrepreneur: Entrepreneurs and Lifestyles. Franchising. Venture Capital. Harvesting Returns. Family Issues. Appendices.

Internal Capital Markets and Investment: Do the Cash Flow Constraints Really Bind?

Abstract: Lament (1997) claims to find evidence of credit market imperfections that distort financing and investment decisions of a sample of oil-dependent firms, as investment by nonoil units fell when oil cash flow dropped. However, a simple test reveals that few of these firms behaved in a fashion consistent with binding cashflow constraints. In addition, most were cash rich. The data provide strong evidence against the hypothesis that investment decisions by nonoil units were significantly affected by oil cash flow, or that credit market imperfections are an important factor for this set of firms.

Targeted Share Repurchases, Free Cash Flows, and Shareholder Wealth: Additional Evidence

Abstract: This paper presents evidence that the valuation consequences of targeted share repurchase announcements are positively related to the size of the firms' pre‐repur‐chase free cash flows and to the firms' pre‐repurchase build‐up of liquid assets. The paper further reports that the level of liquid assets declines permanently following the share repurchases. The results suggest that a share repurchase is a viable means to cut down surplus cash and that such decision can increase shareholder wealth by reducing agency costs of free cash flows.

The disclosure of ‘free cash flow’ in published financial statements: a research note

Abstract: This note reports a small-scale survey of disclosures of free cash flow (whether described as such or not), examines one particularly complex disclosure as a case study of free cash flow calculation, and comments on the policy implications of the empirical findings.

Corporate Financial Management: Strategies for Maximizing Shareholder Wealth

Abstract: CORPORATE FINANCIAL FRAMEWORK. Defining the Twenty--First Century Finance Function. Implementation Strategy and Methodology. TRANSACTION PROCESSES. Supply Chain Model for Financial Transaction Environment. Accounts Payable and the Procurement Process. Payroll. Travel and Expense Reporting. Financial Revenue Process: Accounts Receivable, Billing, and Credit Collections. FINANCIAL AND MANAGEMENT INFORMATION. Financial Accounting and Management Information. Fixed--Asset Accounting. Tax Planning and Compliance. Internal Audit. FINANCE AND BUSINESS PERFORMANCE. Financial Planning and Analysis. Budgeting and Forecasting. Cost and Profitability Management. Performance Reporting and Management. Cash and Working Capital Management. Investor Relations. Corporate Finance. Risk Management. Index.

A capital budgeting model based on the project portfolio approach: avoiding cash flows per project

Abstract: The widely used concept of a cash flow per project in capital budgeting has serious weaknesses when resources are shared by different projects. Accordingly, the concept of cash flow per project is not used herein. Instead, the project portfolio approach is used in which costs are considered only in the acquisition and utilization of resources; when these costs actually occur. The main conclusion from this approach is that better capital budgeting decisions can be made if the concept of cash flow per project is avoided when resources are shared.

Financial planning for the entrepreneur : notes, profiles, cases

Abstract: I. MAJOR TOPICS. 1. Selecting the Form of Business. 2. Financial Ratio Analysis. 3. Forecasting Financial Statements. 4. Projecting Cash Inflows and Outflows. 5. Formulating Business Objectives. 6. Capital Budgeting Project Evaluation Approaches. 7. Inventory Management. 8. Receivables Management. 9. Cash Management. 10. Liabilities Management. 11. Capitalization. 12. Valuation of a Closely Held Firm. II. BUSINESS PROFILES. Fruit Farms. Franchising (Any Industry). Landscaping and Lawncare Firms. Construction: Residential Housing. Garment Manufacturers: Women's, Misses', and Juniors' Dresses. Desktop Publishing and Quick Printing. Travel Agencies. Wholesaling: Durables and Nondurables. Apparel and Accessory Stores. Restaurants. Catalog and Mail Order Houses. Real Estate Offices. Hotels, Motels, and Tourist Courts. Beauty Salons. Building Cleaning and Maintenance Service Firms. Temporary Help Service Firms. Nursing Care Facilities. Management and Business Consulting Firms. III. CASES IN SMALL-BUSINESS FINANCING. Form of Organization: Little Egypt Travel Agency. Form of Organization: B and B Property Management and Real Estate Sales, Inc. Ratio Analysis: Southern Building Company, Inc. Financial Decision-Making: Van's B&B Stopover. Long-Term Planning: The S&S Fruit Farm, Inc. Cash Planning: The United Wholesale Durable Goods Firm, Inc. Pro Forma and Cash Flow Statements: St. Louis Oriental Restaurant, Inc. Developing Operating Objectives: Buy-Low Mail Order Gift Shop. Capital Budgeting Decisions: Green Acres Landscape and Garden Center, Inc. Planning Working Capital Needs: Atlanta Wholesale Furnishings, Inc. Receivables Management: Consumer Durable Goods Franchisers, Inc. Projecting Cash Flows: Ables and Ables Consulting, Inc. Sources of Debt Financing: Complete Office Help. Ownership Versus Suppliers: Sleepy Grove Nursing Village. Factoring Accounts Receivable: Globe Garment Sewing Center, Inc. Capital Structure Planning: Lyles Clothing Stores, Inc. Expansion Through Franchising: Shoney's Restaurant, Inc. Evaluating a New Business: Capital Janitorial Services, Inc. Bibliography. Appendix A: Present Value Tables. Appendix B: Current Federal Income Tax Rules. Appendix C: Business Plan Outline. Index.

Corporate Cash Management: Strategy and Practice

Abstract: Organisational structure Objectives Information systems Forecasting systems Situations management Managing cash cycle exposure Managing interest rate exposure Managing currency rate exposure Control systems Performance measurement Summary

Life-Cycle Impacts on the Incremental Information Content of Earnings and Cash Flow Measures

Abstract: The focus of this study is on the incremental information content of earnings, operating cash flows, investing cash flows, and financing cash flows, within each of four life-cycle stages: start-up, growth, mature, and decline. As predicted earnings and operating cash flows are incrementally informative in life-cycle stages when assets in place are a major component of firm value. Investing and financing cash flows are incrementally informative in life- cycle stages characterized by relatively fewer assets in place and more growth opportunities. Overall, these results provide additional support for the usefulness of the cash flow statement required by FAS 95. However, the evidence suggests that the usefulness of the three components of the cash flow statement depends on the life-cycle stage of the firm, which has implications for users of financial statements.

Review and Update of Virginia Department of Transportation's Cash Flow Forecasting Model

Abstract: Accurate predictions of cash balances are essential to the month-to-month operations of transportation departments The Virginia Department of Transportation (VDOT) relies on a general cash flow forecasting model to predict monthly outflows and inflows of cash to various activities VDOT's model was developed in the mid-1980s and reflects the realities of that time Much has changed in the operational aspects of VDOT since then The cash flow model was updated The research focused on two components (or submodels) of the general cash flow model: the monthly factors submodel, which is used to forecast monthly expenditures on construction contracts, and the maintenance expenditures submodel, which is used to forecast monthly outlays on maintenance activities The result was an update of the basic elements of the monthly factors submodel while, for the most part, retaining the original underlying methodology The research yielded a new methodology for the prediction of monthly expenditures on maintenance The new forecasting method is based on a regression equation

Adopting a Semi-ideographic Approach to Cash Flow Forecasting

Abstract: Cash flow forecasting is an important part of the management of a construction company. A large proportion of construction company bankruptcy is due to poor financial planning. Many of today's cash flow forecasting models rely on standard Scurves. A standard S-curve is often chosen from a library of curves developed by calculating the average monthly percentage values of a group of completed projects . Therefore a single standard S-curve is often used to represent many projects that belong to a particular group. In this paper, the authors demonstrate that the above approach (i.e. nomothetic models) will not always yield the most accurate results. The paper proposes that an idiographic (a specific curve for a specific project) model should be adopted instead. The paper begins by describing briefly a nomothetic model which was developed using 150 projects. This model was based on groups classified in terms of duration and cost. The models were then modified to be able to incorporate the affects of the actual duration of the project concerned. The paper concludes by testing the accuracy of the proposed idiographic models. The results confirm that better accuracy is achieved when using this approach.