Formation of information on cash flows for the purpose of investment decisions

Abstract

Importance. The article explores the usefulness of cash flow information disclosed in financial and corporate reports and its relevance to the information needs of the investment community. The analytical capabilities of financial reporting for forecasting and financial modeling purposes are limited by the insufficient completeness of disclosures necessary for the development of forecast models. Along with financial reporting indicators, investors, analysts and companies themselves are actively using alternative indicators of cash flows or non-GAAP indicators. The variety of approaches to the determination of non-GAAP indicators reduces the reliability of the investment analysis, on the one hand, and creates conditions for data manipulation, on the other. Objectives. A comprehensive author's study of the forming reliable information about the business ability to create cash flows in the interest of making investment decisions. Methods. In the research process, we used the methods of logical, statistical, comparative, as well as linguistic analysis. As the main objects of comparative analysis, we considered indicators of profit indicators before interest, taxes and depreciation, free cash flow, net debt and their ratios. In order to characterize the significance of these indicators for assessing the investment attractiveness of issuers, we provided the analysis of the metallurgical companies` dividend policy and its connection with considering metrics. Results. The results of the study include recommendations on the cash flow disclosure in order to increase the validity of investment decisions. We focused on those aspects of cash flow disclosures that could significantly affect the investment assessment. Conclusions and Relevance. The study showed that the methodology for the formation of cash flow indicators in the organizations is affected by different factors. In order to provide information for cash flow forecast and modelling, reporting companies should disclose data on strategies, business models, sources of cash flows and directions of their use. Non-GAAP indicators` disclosure should be based on the same principles that apply in preparing financial statements. All material adjustments carried out with the calculation of the non-GAAP indicators should be presented to users.