Abstract
The paper deals with the subject of relationships among the different cash flows, as well as earnings, of a company. The aim of the paper is to establish the direction and strength of mutual relationships between different cash flow measures, as well as with earnings, and to provide recommendations for the prediction of future cash flows and earnings. The methods of the research include content analysis, the calculation of relative indicators, average and median measures, as well as regression and correlation analysis. There is an empirical study of the data of 52 Latvian companies, which has resulted in testing the hypotheses put forward and substantiated in the paper. A typical Latvian enterprise relies on the operating cash flow to create the investing cash flow and does not need to rely on the external sources of financing. The author concludes that investment does pay, and, based on the assessment of results of the developed model, the investing cash flow should be used in cash flow prediction, while it should not be used in earnings prediction. The increase in financing cash flow causes a company investments to increase.
Highlights
There is a lack of research on the mutual relationships of cash flow measures
The NPNA is greater than INPNA, which indicates that a typical Latvian company relies on the operating cash flow to create the investing cash flow and does not need to rely on the external sources of financing
This negative ratio indicates that a typical Latvian enterprise is repaying the financing it has acquired in the previous periods
Summary
There is a lack of research on the mutual relationships of cash flow measures. This applies to both worldwide as well as Latvian scientific publications. The financing cash flow as a driver of company investments and the operating cash flow as a driver of company’s financial activities have not been analysed in any scientific publications. 3. To analyse financing cash flow as a driver of a company’s investments. Linear regression models were put forward, in which the investing cash flow was an independent variable and the operating cash flow and earnings one year ahead were the dependent variables (Models 1 and 2). The remainder of the paper consists of the theoretical analysis of the concept and prediction of corporate cash flow: Chapter 2 follows the Introduction, Chapter 3 offers the description of data, Chapter 4 presents the analysis of empirical data, and the paper is concluded with Chapter 5 – Conclusions
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