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Are Cash Flows Better Stock Return Predictors Than Profits?
- Source :
- Financial Analysts Journal. 73:73-99
- Publication Year :
- 2017
- Publisher :
- Informa UK Limited, 2017.
-
Abstract
- Although various income statement–based measures predict the cross section of stock returns, direct method cash flow measures have even stronger predictive power. We transform indirect method cash flow statements into disaggregated and more direct estimates of cash flows from operations and other sources and form portfolios on the basis of these measures. Stocks in the highest-cash-flow decile outperform those in the lowest by over 10% annually (risk adjusted). Our results are robust to investment horizons and across risk factors and sector controls. We also show that, in addition to operating cash flow information, cash taxes and capital expenditures provide incremental predictive power.
- Subjects :
- 040101 forestry
Economics and Econometrics
050208 finance
Actuarial science
Cash and cash equivalents
05 social sciences
04 agricultural and veterinary sciences
Cash flow forecasting
Operating cash flow
Accounting
0502 economics and business
Economics
Econometrics
0401 agriculture, forestry, and fisheries
Cash flow
Cash flow statement
Cash on cash return
Price/cash flow ratio
Cash management
Finance
Subjects
Details
- ISSN :
- 19383312 and 0015198X
- Volume :
- 73
- Database :
- OpenAIRE
- Journal :
- Financial Analysts Journal
- Accession number :
- edsair.doi...........bbe0a002e8fb0bb38d2beef567efb762
- Full Text :
- https://doi.org/10.2469/faj.v73.n1.2