Onko liikevoitto parempi tulevien liiketoiminnan rahavirtojen ennustaja kuin liiketoiminnan rahavirta?

FASB asserts that accrual-based earnings are more informative about firm’s ability to generate future cash flows than cash-based measures themselves. This has motivated a significant amount of empirical research to compare the ability of earnings and cash flows to predict future cash flows. However, regardless of numerous studies over the span of several decades, the topic still remains unsettled. While certain studies find that earnings outperform cash flows at predicting future cash flows, other studies find conflicting results. Whereas most of prior research compare aggregate earning measures to operating cash flows, the objective of this thesis is to put more emphasis on disaggregated earnings components by further examining the ability of operating profit and its equivalent cash-basis measure (i.e. operating cash flow) to predict future operating cash flows. Furthermore, the empirical tests are divided into three parts: relative predictive ability analysis, time-series trend analysis, and industry-level analysis. The empirical tests are conducted using OLS regressions, employing both annual cross-sectional and firm-specific time-series regression specifications to compare findings across the two approaches. The sample consists of U.S. nonfinancial firms spanning the period 1988–2023. Findings from the relative predictive ability analysis support prior evidence that operating profit exhibits a greater predictive ability than operating cash flow. However, the time trend analysis shows that operating profit does not outperform operating cash flow across the entire sample period. On the other hand, both operating profit and operating cash flow exhibit positive trends in the predictive ability over the sample period. Since the relative difference in the predictive ability has remained relatively stable over the sample period, the observed increase in the predictive ability is likely driven by cash flow specific factors. Finally, the industry-level analysis shows that the relative predictive ability of operating profit and operating cash flow differs across sectors. Specifically, in eight out of ten sectors operating profit outperforms operating cash flow, while in Communication Services and Real Estate sectors neither variable exhibit superior predictive ability. Notably, these sectors have the shortest median operating cycles, indicating that operating cycle length is associated with differences in the relative predictive ability of operating profit and operating cash flow.