Showing papers on "Cash flow statement published in 1987"

The incremental information content of accrual versus cash flows

Abstract: Current financial reporting practices have traditionally emphasized measures of accrual earnings. On the other hand, the link between future cash flows and firm value is well accepted by financial economists, and recently there has been increased interest in measures of cash flow. This paper provides evidence on the role of accrual (i.e., earnings and working capital from operations [WCFO]) and cash flow measures in an explanatory model of security prices. This issue is first examined by testing for an association between unexpected security returns and unexpected cash flows, after controlling for the relation between unexpected returns and unexpected earnings. We also examine the obverse issue by testing for an association between unexpected security returns and unexpected earnings, after controlling for the relation between unexpected returns and unexpected cash flows. We test these relations in two contexts: in results pooled over the entire ten-year time period studied and in year-byyear cross-sectional regressions. Results for our complete sample are generally consistent with: (1) cash flow data having incremental information content relative to that contained in earnings; (2) cash flow data having incremental information content in addition to that contained in earnings and WCFO; and (3) accrual data (i.e., earnings and WCFO) jointly and separately having incremental information content in addition to that contained in cash flow data. However, the results do not support the hypothesis that WCFO has incremental information content relative to that contained in earnings. T HE onset of higher interest rates and more frequent business failures in the 1970s was accompanied by increased concern over the usefulness of accrual accounting numbers relative to cash flow data. Recently, the Financial Accounting Standards Board (FASB) [1986] has addressed this concern by proposing that the Statement of Changes in Financial Position (SCFP) be replaced by a Cash Flow Statement. The increased emphasis on the more primitive concept of cash flows is a departure from the current institutional environment in which accrual accounting preThe authors wish to thank Vic Bernard, Andrew Christie, George Foster, Lauren Kelly, Dana Klemme, Paul Malatesta, Eric Noreen, Pete Wilson, two anonymous reviewers, and participants in the 1981 and 1984 Robert M. Bowen is Associate Professor of Accounting, University of Washington, David Burgstahler is Associate Professor of Accounting, University of Washington, and Lane A. Daley is AssociateProfessorofAccounting, University of Minnesota. Manuscript received July 1986. Revisions received March 1987 and May 1987. Accepted May 1987.

Accounting Theory: Text and Readings

Abstract: The Development of Accounting Theory How Should the FASB be Judged Using the FASB's Conceptual Framework: Fitting the Pieces Together Research Methodology and Theories on the Uses of Accounting Information The FASB in a World with Partially Efficient Markets Income Concepts Criteria for Choosing an Accounting Model Concepts of Capital Maintenance Financial Statements I: The Income Statement Towards Reporting Comprehensive Income Reporting Accounting Changes: Are Stricter Guidelines Needed? Financial Statements II: The Balance Sheet and the Statement of Cash Flows The Concepts of Assets in Accounting Theory Inconsistencies and Ambiguitites in Cash Flow Statements Under FASB Statement No. 95 International Accounting The IASC and Its Comparability Project: Prerequisities for Success The Future Direction of Accounting Working Capital Is Working Capital Really Working? Long Term Assets I: Property, Plant and Equipment SFAS 34: A Recipe for Diversity Concepts and Depreciation-Business Enterprises Long Term Assets II: Investments and Intangibles Accounting for Transfers of Financial Assets Under SFAS No. 125 Accounting for Goodwill Long Term Liabilities The Fundamental Financial Instrument Approach Derivatives, Hedging and Comprehensive Income Accounting for Income Taxes Understanding and Applying FAS 109 Leases Regulation, Rents, and Residuals Pensions and Other Postretirement Benefits Continuing Unresolved Issues of Pension Accounting Equity Some Basic Concepts of Accounting and Other Implications ESOP Accounting: Past, Present and Future Accounting for Multiple Entries Accounting for Business Combinations-The Purchase verse Pooling of Interests Issue Evolution of Concepts of Minority Interests Current Value and General Purchasing Power Accounting Responsibilities Accounting for Changing Prices: Dead or Alive? Financial Reporting Disclosure Requirements and Ethical Responsiblities Policing Financial Disclosure Fraud: The SEC's Top Priority Ethics and Disclosures: An Analysis of Conflicting Duties.

Re-Examining the Buffer-Stock Model of Money

Abstract: This paper critically examines recent papers in the buffer stock or supply side disequilibrium models of money. The paper first investigates the assumptions at the m icroeconomic level and concludes that even with these assumptions, aggregate behavior does not necessarily follow buffer-stock models in which excess cash balances are held involuntarily. In a simple model with uncertain cash flows, it is shown that in the aggregate short-run involuntary cash holdings are negligible. If the buffer-stock story is applicable, it is to a broader definition of money than used in most empirical work. The second part of the paper examines empirical work and argues that the buffer-stock idea cannot be implemented using single equation techniques, and that when viewed appropriately, current empirical result s refute the buffer-stock idea as it is currently modeled. Copyright 1987 by Royal Economic Society.

A Management Guide to Leveraged Buyouts

Abstract: WHAT MANAGEMENT SHOULD KNOW ABOUT LEVERAGED BUYOUTS History and Background How Risky are LBOs? LBO Failures Why Leveraged Buyouts Will Remain Viable BENEFITS TO OWNERS AND MANAGEMENT Why Owners Should Consider a Leveraged Burnout Conflict of Interest What Buyers Look for in LBO Candidates STATISTICAL COMPARISON OF 30 LEVERAGED BUYOUTS Purchase Price Management Participation Bankers and Fees Debt Terms and Coverage Financial Structure Breakdown ANATOMY OF A LEVERAGED BUYOUT Mezzanine Financing Projecting a Profit and Loss Statement, A Cash Flow Statement and a Balance Sheet LEVERAGE BUYOUTS CASES Pannill Knitting Dr Pepper Woodward & Lothrop Kincaid Furniture Guilford Industries Perfect Fit Metromedia Multimedia Piece Goods Shops, Inc Glendale Fabrics LADD Furniture Cone Mills Dan River Inc Levits Furniture Corporation Reliable Stores, Inc Financial Analysis of Pannill Knitting Buyout Glossary INDEX

A Microcomputer Program that Simulates the Baumol-Tobin Transactions Demand for Money

Abstract: This article describes an economic model dealing with the demand for money and a microcomputer program that enables students to experiment with cash-management techniques. The computer experience teaches students that money does not need to have a physical existence or earn interest to be demanded. It also teaches that abstract theories are useful even though decision makers may not consciously use the thought processes described in the theory. By simulating personal experiences, the program teaches how changes in income, interest rates, and charges for exchanging bonds and cash affect money demand. Finally, the program can be used as an illustration of the economist's problem-solving method-the construction of marginal benefit and marginal cost schedules. The program is modeled after the Baumol-Tobin transactions demand for money. The assumptions made in the program-a fixed fee for exchanging bonds for cash, interest earnings that are paid at the end of the year, and an even expenditure stream-are those made by Baumol (1952) and Tobin (1956). However, for purposes of simplicity, the program, unlike the theory, does not allow bond-cash exchanges within a month. The features such integer constraints add to the model have been analyzed by Barro (1976). The program described in this article is user-friendly. It has been written so that a cash account and a bond account can be maintained. The program requests entries for annual income, the bond rate of interest, and the fee for exchanging bonds and cash. A cash account is created for the full annual income. Any portion of the cash may be transferred to a bond account. The program records the changes in the accounts, the fee for exchanging bonds and cash, as well as the interest earnings. Each month, the program reduces the cash account by one-twelfth of annual income. If the cash account contains insufficient funds, the program forces a bond sale-and charges the fee for exchanging bonds for cash. At the end of the "year," the bond and cash accounts have been reduced to zero. The program prints a written record of the accounts, transactions, earnings, and charges. The program reports the maximum earnings possible given the interest, income, and fee entered, as well as the actual average monthly cash holdings for the year. A year's transactions can be completed in about five minutes.

Cash Transfer Scheduling for Concentrating Noncentral Receipts

Abstract: Cash concentration is a routine cash management activity that concerns transfer of funds from bank accounts in remote locations to the firm's central bank accounts. Substantial savings can accrue to the company as a result of properly scheduling these transfers, i.e. determining the optimal timing and amount of cash transfers. In this paper an easy to implement model is developed to aid management in this activity. The transfer policy is shown to be a day-specific s, S policy which is amenable to efficient computerization. This result is shown to hold under a set of realistic assumptions regarding deposit patterns, various cost functions, and institutional arrangements.

Corporate Cash Management

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Financial Accounting and Corporate Reporting: A Casebook

Abstract: The fundamentals of accounting revenue and expense recognition asset valuation equity valuation cash flow and financial statement analysis issues in corporate financial reporting overview cases.

Cash flow planning

Abstract: The results of recent surveys of businesses indicate that cash flow is the single most important problem they face. The business press has noted that “cash‐flow planning is one of the more difficult and vulnerable areas in business management,” and that “businessmen can't understand why…they [are] running out of cash.” In fact, it's safe to suggest for companies of any size that cash is the lifeblood of the firm, and that a company's cash‐planning practices can be a critical early warning device of impending financial trouble.

The Financial Implications of In-Substance Defeasance

Abstract: In November 1983, the Financial Accounting Standards Board issued Statement No. 76, Extinguishment of Debt. The Statement permits corporations completing an in-substance defeasance to recognize an increase in earnings and earnings per share. High interest rates in 1984 and the Statement encouraged corporate managers to defease debt in substance and to show the associated increase in earnings per share.The financial impact contrasts with those of accounting. Although in-substance defeasance leads to an increase in reported earnings, financial theory suggests that it leads to a decrease in the price of the defeasing corporation's common stock by doing the following: decreasing the amount of future cash flows, decreasing corporate liquidity, redistributing wealth from common shareholders to bondholders, and decreasing the debt-equity ratio. Only the change in the debt-equity ratio may lead to an expected increase in stock price. The other three influences lead to an expected decrease.

Capital budgeting strategies with uncertain cash flows

Abstract: In financial planning problems the selection of project investment when cash flows are certain has been the subject of considerable work. This paper considers optimal project sets with practical aspects involving the effect of uncertain flows using simulation to determine the confidence limit for required available funds and the probability that a chosen project set is not the best.

The Derived Demand for Real Cash Balances in Agricultural Production

Abstract: The effect of real money balances on consumption is well known as the Pigou effect. It asserts that increases in real money balances held by the private sector increase consumption. The role of money in production is, however, less well understood. In fact, Moroney's observation that the theory of money has not been satisfactorily integrated with the pure theory of production remains credible more than a decade later. One economic rationale for incuding money in the production function is that money services increase the efficiency of obtaining physical inputs necessary for production and marketing. In agriculture, the services from real cash balances may also mitigate problems associated with the timing of input purchases. That is, money services may facilitate the purchase of inputs in situations where the production process is lengthy and the receipt of revenues is delayed. If real cash balances play an important role in agricultural production, and it is the maintained hypothesis of this

A Perspective on Cash Planning

Abstract: Cash planning was introduced in 1981 to take effect in the financial year 1982/83. The intention was to operate in 3-year cycles with a medium term cash plan. Therefore, an analysis of the cash outturns for the first two cash planning cycles is possible. Alternatively, the objectives of the MTFS may be viewed in the light of outturns for public spending, borrowing and taxes in relation to GDP. As was noted in Chapters 3 and 6, these GDP-based data have assumed some importance as intermediate, and perhaps ultimate, targets of the strategy. Thus there are three objectives: to establish how successful has been the aim of sticking to cash plans; to gain an impression of the volume consequences of cash planning; and to assess the pattern of GDP-based outturns for spending, borrowing and taxation.