The Valuation of Cash Flow Forecasts: An Empirical Analysis

This article compares the market value of highly leveraged transactions (HLTs) to the discounted value of their corresponding cash flow forecasts. For our sample of 51 HLTs completed between 1983 and 1989, the valuations of discounted cash flow forecasts are within 10 percent, on average, of the market values of the completed transactions. Our valuations perform at least as well as valuation methods using comparable companies and transactions. We also invert our analysis by estimating the risk premia implied by transaction values and forecast cash flows, and relating those risk premia to firm and industry betas, firm size, and firm book-to-market ratios.     

Why Do Managers Voluntarily Issue Cash Flow Forecasts?

We study a relatively recent change in voluntary disclosure practices by management, namely, the issuance of cash flow forecasts. We predict and find that management issues cash flow forecasts to signal good news in cash flow, to meet investor demand for cash flow information, and to precommit to a certain composition of earnings in terms of cash flow versus accruals, thus reducing the degree of freedom in earnings management. Our results also suggest that management discloses good news in cash flow to mitigate the negative impact of bad news in earnings, to lend credibility to good news in earnings, and to signal economic viability when the firm is young. Our finding that management cash flow forecasts primarily convey good news is in contrast to the generally negative nature of management earnings guidance and suggests that different incentives drive firms' disclosure of different financial information.     

Analyzing the Analysts: Career Concerns and Biased Earnings Forecasts

We examine security analysts' career concerns by relating their earnings forecasts to job separations. Relatively accurate forecasters are more likely to experience favorable career outcomes like moving up to a high-status brokerage house. Controlling for accuracy, analysts who are optimistic relative to the consensus are more likely to experience favorable job separations. For analysts who cover stocks underwritten by their houses, job separations depend less on accuracy and more on optimism. Job separations were less sensitive to accuracy and more sensitive to optimism during the recent stock market mania. Brokerage houses apparently reward optimistic analysts who promote stocks.     

Cash Flow Accounting and Liquidity: Cash Flow Potential and Wealth

The persistence of a minority interest in ‘cash flow accounting’ alongside the dominant financial reporting pattern that gives cash flow statements a distinctly secondary role in the line-up of flow statements suggests that something is missing from the analyses of the interested parties. The major theme of this paper is that users rely on historical cash flow reporting for information relevant to projecting enterprise liquidity in the short run, and on financial statements based on accrual-deferral accounting for information relevant to their interest in wealth and income. An explicit distinction between the two accounting objectives (providing information for use in assessing future enterprise liquidity and providing information for use in assessing enterprise wealth and income and performance against investors' augmentation-of-wealth objective) is recommended as a basis for clarifying the issues. That distinction suggests the value of two quite different, but related, sets of data: historical cash flows and stocks and flows of cash potentials.     

Analysts' Cash Flow Forecasts,Audit Effort,and Audit Opinions on Internal Control

We examine the economic impact of analysts’ cash flow forecasts by looking at how external auditors respond to financial analysts’ issuance of cash flow forecasts. Using a differences‐in‐differences approach, we find that financial analysts’ initiation of cash flow forecasts leads to reduced auditor fees and audit report lags. Moreover, after cash flow forecast initiation, firms report fewer Section 404(b) internal control weakness disclosures. These findings suggest that cash flow forecasts constrain earnings manipulation and improve management accounting behavior, thereby reducing inherent and control risk and strengthening firms’ internal control over financial reporting.     

Valuing Pharma R&D: The Catch-22 of DCF

There are two principal methods for valuing pharmaceutical R&D projects—discounted cash flow (DCF) and real options valuation (ROV). As typically practiced, DCF valuations tend to be lower than the estimates produced by ROV techniques. Part of the difference, as many have recognized, stems from DCF s limited ability to take account of managers' real option to cut its losses when new information reveals a drug candidate's lack of profit potential. Another reason for the difference, however, is the widespread use in DCF valuations of established success rates that do not distinguish between projects that fail to pass safety or efficacy trials and those that are abandoned for lack of economic viability. If the appropriate success rates are used, the two methods should yield identical project values because they assume the same scenarios. The practical reality, however, is that the two methods deal in a completely different way with the possibility of abandonment for economic reasons. Because ROV accounts for this possibility directly in the model itself, it is much better suited than DCF to this task—indeed, that is the uncertainty that it is designed to deal with. And the fact that 30% of all pharma R&D abandonments are for economic reasons is a strong argument for using ROV rather than DCF to evaluate new drug development.     

The Cash Flow Sensitivity of Cash

We model a firm's demand for liquidity to develop a new test of the effect of financial constraints on corporate policies. The effect of financial constraints is captured by the firm's propensity to save cash out of cash flows (the cash flow sensitivity of cash). We hypothesize that constrained firms should have a positive cash flow sensitivity of cash, while unconstrained firms' cash savings should not be systematically related to cash flows. We empirically estimate the cash flow sensitivity of cash using a large sample of manufacturing firms over the 1971 to 2000 period and find robust support for our theory.     

Cash Flow Matching

Abstract

We propose a scenario-based optimization framework for solving the cash flow matching problem where the time horizon of the liabilities is longer than the maturities of available bonds and the interest rates are uncertain. Standard interest rate models can be used for scenario generation within this framework. The optimal portfolio is found by minimizing the cost at a specific level of shortfall risk measured by the conditional tail expectation (CTE), also known as conditional valueat-risk (CVaR) or Tail-VaR. The resulting optimization problem is still a linear program (LP) as in the classical cash flow matching approach. This framework can be employed in situations when the classical cash flow matching technique is not applicable.     

Cash Flow and the Eurotunnel

The Channel Tunnel, a major international investment project funded approximately 80% by debt and 20% by equity, is expected to be completed by 1993. The Eurotunnel Offer for Sale document (published in November 1987) contained financial projections based on traditional accruals-based principles. This paper converts the published information to a cash flow-based format and critically assesses the depreciation, taxation, dividend and financing policy implications. The relevance of depreciation policy in cases of projects with finite lives is discussed, and the paper concludes that information prepared on cash flow-based principles provides an alternative and more useful perspective of the Eurotunnel operations.     

结构化信用:现金流与复合型担保债务凭证(摘登)

国际金融资产证券化市场始于20世纪70年代,商品种类多样化,其中担保债务凭证(Collateralized Debt Obligations,CDOs)是近年来成长极为迅速的证券化商品之一。由于担保债     

从现金流切入

中小企业和银行合作,一定要找一两家银行做深度交往,让银行对企业产生比较多的关注。而与银行往来的最佳切入点,就是让银行为企业提供现金管理服务。广发银行贸易金融部销售总监兼现金管理部总经理杨延年在接受《新理财》专访时表示。     

现金流至上

在利润目标的驱使下,管理者往往会忽视现金流的问题,不断通过超预算支出来扩张业务,提高经营业绩,实现短期利润目标,但在《管理的省悟》中,结合福田资金管理实践,张夕勇认为:公司应树立‘现金流比利润更重要’的观念,强调现金流在公司战略管理中的重要地位,把现金流作为企业运营成果的评价标准;公司决策的着眼点应定位于‘尽量提前收回现金’,切忌以牺牲长期现金流量来改善短期利润状况,避免出现‘良好的经营成果与堪忧的财务状况并存’的尴尬局面。     

Continuous Cash Flow Payment: Theories and Practice Framework

Continuous cash flow payment is the key element to complete the payment framework. While discrete cash flow payment matches the event of exchange of goods, continuous cash flow payment can closely match the process of exchange of services. We discovered that by embedding continuous cash flow models into a settlement system, continuous cash flow payment is doable under recent FinTech environment. This article constructs this novel continuous cash flow payment framework and theorizes payment practices into a unified framework.     

Earnings Smoothing,Cash Flow Volatility,and CEO Cash Bonus

Prior studies generally relate managers’ decisions to smooth earnings to their desire to maximize their overall compensation and to smooth their consumption. However, earnings smoothing could also be driven by the firm's expected benefits from reporting a smooth earnings stream. Our paper provides empirical support for the latter explanation of earnings smoothing. Specifically, we find that while CEO bonus on average increases with earnings smoothing, the increase is larger when the firm's cash flow volatility is higher. Further, CEO bonus is shielded from the negative effects of lower earnings arising from the need to report a smoother earnings stream.     

Cash Flow Sensitivity of Investment

Investment cash flow sensitivity is associated with both underinvestment when cash flows are low and overinvestment when cash flows are high. The accessibility of external capital is positively correlated with cash flows, intensifying investment cash flow sensitivity. Managers actively counteract the variations in internal and external liquidity by accumulating working capital when liquidity is high and draining it when liquidity is low. These results imply that cash flow sensitive firms face financial constraints, which are binding in low cash flow years. Traditional indicators of financial constraints, such as size and dividend payout, successfully distinguish firms that may potentially face constraints, but are less successful in distinguishing between periods of tight and relaxed constraints. These periods are much more clearly separated by the KZ index, which, on the other hand, is less successful in identifying firms that are likely to face liquidity constraints.     

The Effect of Issuing Biased Earnings Forecasts on Analysts' Access to Management and Survival

This study offers evidence on the earnings forecast bias analysts use to please firm management and the associated benefits they obtain from issuing such biased forecasts in the years prior to Regulation Fair Disclosure. Analysts who issue initial optimistic earnings forecasts followed by pessimistic earnings forecasts before the earnings announcement produce more accurate earnings forecasts and are less likely to be fired by their employers. The effect of such biased earnings forecasts on forecast accuracy and firing is stronger for analysts who follow firms with heavy insider selling and hard‐to‐predict earnings. The above results hold regardless of whether a brokerage firm has investment banking business or not. These results are consistent with the hypothesis that analysts use biased earnings forecasts to curry favor with firm management in order to obtain better access to management's private information.     

管控“现金流”

目前我国企业的现金流量管理还处于极低的水平。绝大多数企业实行的还是根据国家规定的现金开支范围和银行结算制度办理往来收付结算,以经验和内部牵制制度为主体的管理办法。可以采取