Valuation of Earnings, Cash Flows and their Components

An Empirical Investigation

Andreas Charitou, John Edward Ketz

Research output: Contribution to journalArticle

17 Citations (Scopus)

Abstract

Security valuation has been in the forefront of the accounting and finance literature for many years. Although there is consensus that stock prices are related to future cash flows of the firm, there is controversy about the usefulness of the ex post earnings and cash flow measures in signaling stock prices. A cross-sectional equity valuation model is used to examine the incremental valuation content of earnings and cash flows in the marketplace. A sample of retail firms is used for the four-year period from 1980 to 1983. The results of this study indicate that (a) operating earnings have valuation content beyond operating cash flows, (b) operating cash flows do not have valuation content beyond operating earnings, and (c) the components of earnings, namely operating cash flows and accruals provide the same information to the market about future expected cash flows.

Original languageEnglish (US)
Pages (from-to)475-497
Number of pages23
JournalJournal of Accounting, Auditing & Finance
Volume5
Issue number4
DOIs
StatePublished - Jan 1 1990

Fingerprint

Empirical investigation
Cash flow
Operating cash flows
Stock prices
Incremental
Usefulness
Equity valuation
Accruals
Finance
Valuation model
Security valuation
Retail

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics, Econometrics and Finance (miscellaneous)

Cite this

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Valuation of Earnings, Cash Flows and their Components : An Empirical Investigation. / Charitou, Andreas; Ketz, John Edward.

In: Journal of Accounting, Auditing & Finance, Vol. 5, No. 4, 01.01.1990, p. 475-497.

Research output: Contribution to journalArticle

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