DURATION AND INTEREST RATE RISK FOR UNCERTAIN CASH FLOW STREAMS

This paper amends the Hicks-Macaulay-Samuelson duration analysis to allow for uncertainty in asset cash flows. An asset's duration measure then becomes a random variable which may possess no central moments. We show, however, that a transformed version of the duration measure is normally distributed. This can be used to make probability assessments of the sensitivity ofthe present value of an asset's cash flow stream to interest rate movements.     

CASH FLOW REPORTING AND DISTRIBUTIONAL ALLOCATIONS: A NOTE

This Note clarifies certain problems associated with the construction and interpretation of cash flow statements.     

EVALUATING CASH FLOW SYSTEMS UNDER GROWTH

This paper considers a potential extension and refinement of the type of cash flow analysis of cash management systems commonly found in financial management texts. The timing effect of a cash management system has three distinct components—overlap, acceleration, and residual. However, only the overlap component is explicitly quantified by the standard evaluation procedure. Conditions are specified under which quantification of an additional component (acceleration) can significantly improve the accuracy of the estimates.     

ESTIMATING THE INTERNAL RATE OF RETURN FROM PUBLISHED FINANCIAL STATEMENTS: A COMMENT

In a recent issue of this journal T. Salmi attempted to estimate the internal rate of return from published financial statements. Two reasons lead to the conclu- sions that his approach is partly in error. The first is a technical one. Also it has been proved that his objective, estimating the IRR in the case that it is approximately equal to the growth rate, can be reached in a much simpler way.     

THE ACCURACY OF CASH FLOW ESTIMATION PROCEDURES

Prior research uses mechanical procedures to estimate cash flow data. This study examines the accuracy of these procedures by measuring errors between estimated cash flows and reported cash flows. The results indicate that mechanical rules provide poor estimates for reported cash flows. We also show that the errors between cash flow estimates and reported cash flows can be reduced by adjustments made from footnote disclosures. However, large errors remain, even after adjustments are made from footnote disclosures. These remaining errors are correlated with firm specific characteristics such as sales (firm size), extraordinary items, foreign currency gains and losses, and changes in inventory.     

CASH FLOW ACCOUNTING AND THE ALLOCATION PROBLEM

Cash flow accounting (CFA) proposals typically have included firm statements that CFA data are allocation-free. This is not entirely true if the term allocation is interpreted in a wide sense. However, it can be argued that most allocations can be avoided in CFA systems, and this paper is an attempt to present this argument. In particular, it aims to strengthen the case for CFA in practice.