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2020 | Book

Accounting, Cash Flow and Value Relevance

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About this book

Although the concept “Cash is King” is today widely recognized, the cash flow statement was rather neglected until the EU accounting regulators discovered its relevance in explaining the real value of the business. This book investigates the value relevance of the operating cash flow as reported under the International Financial Reporting Standards (IAS/IFRS) for the largest European listed companies and US listed companies in the past recent years. Using the model based on the valuation theory developed by Ohlson, which measures the market value of equity as a function of accounting variables, the author concludes that operating cash flow represents a significant variable in determining the value relevance of the largest European and US listed companies. These findings provide siginificant implications for standard setters and support the continued requirements for disclosure of cash flow information under IAS 7.

Table of Contents

Frontmatter
Chapter 1. Introduction
Abstract
The main goal of accounting and financial reporting is to assist investors in making economic decisions, including assessing the value of firms in which they have invested (Barth et al. 2005) following the shareholder value approach.
Francesco Paolone
Chapter 2. The Cash Flow Statement Under IAS/IFRS
Abstract
Many jurisdictions have obliged the disclosure of a Cash Flow Statement as a separate quantitative report of the financial statements (Akbar et al. 2011). In the USA in 1973, the Financial Accounting Standards Board (FASB) specified rules that made it mandatory under Generally Accepted Accounting Principles (US GAAP) to disclose sources and uses of funds, but the definition of “funds” was not clear.
Francesco Paolone
Chapter 3. The Historical Background of Cash Flow Statement: First Evidences and Contributions
Abstract
In the past, the Cash Flow Statement has always been an accompanying document to the traditional financial statements, acting as a stand-alone document with the aim of highlighting the level of liquidity and solvency, which is of particular importance for those outsiders who have provided capital.
Francesco Paolone
Chapter 4. The Value Relevance of Accounting Information and Cash Flows: A Review of Prior Studies and Models
Abstract
The contributions of “value relevance” can be collected from macro-area of earnings quality studies, i.e., those studies aimed at appreciating the quality and usefulness of financial statements and related accounting information.
Francesco Paolone
Chapter 5. Data Analysis on EU and US Listed Companies
Abstract
Companies prepare Cash Flow Statements according to the accounting standards requirements. A broad discussion has been raised regarding its usefulness to companies for investors. The big issue to be addressed is: What about the importance of cash flow from the investors’ perspective, specifically, the reflection of operating cash flow (OCF) information content on a company’s market value?
Francesco Paolone
Chapter 6. Concluding Remarks: The Importance of Cash Flow Statement
Abstract
The most important element of the Cash Flow Statement is not the change in a stock financial resource between the beginning and end of the period, which can be found in the balance sheet, regardless of the financial resources that are referenced (cash or net working capital), but, rather, it is represented by the individual types of change and related causes (Allegrini et al. 2014).
Francesco Paolone
Backmatter
Metadata
Title
Accounting, Cash Flow and Value Relevance
Author
Assoc. Prof. Francesco Paolone
Copyright Year
2020
Electronic ISBN
978-3-030-50688-9
Print ISBN
978-3-030-50687-2
DOI
https://doi.org/10.1007/978-3-030-50688-9

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