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THE USEFULNESS OF OPERATING CASH FLOW INFORMATION: DOES FORMAT MATTER?

Shadi Farshadfar

DOI: 10.22495/cocv10i1art4

Abstract

This study investigates whether the direct method of presenting cash flows from operations is superior to the indirect method in its ability to forecast future cash flows. It also considers the effect of industry characteristics on the relative usefulness of direct and indirect methods of cash flow presentation. The study, which uses a sample of Australian firms, finds that both the direct and indirect methods improve the forecast of future cash flows. However, the indirect method of reporting cash flows from operations is more relevant than the direct method in predicting future cash flows. Evidence from the industry-level analysis overall reinforces the main results.

Keywords: Cash Flows, Direct Method, Indirect Method, Predicting Future Cash Flows

How to cite this paper: Farshadfar, S. (2012). The usefulness of operating cash flow information: Does format matter? Corporate Ownership & Control, 10(1), 44-52. http://doi.org/10.22495/cocv10i1art4

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