The role of leverage and stock-based variables in the prediction of cash flows and earnings – some evidence from India

Abstract

One of the objectives of accounting reporting system is to provide the analysts a true picture of the firm’s financial position. Recognising this importance, the International Accounting Standards Board has prescribed IAS 7 (cash flow statement). Many studies have been carried out to assess the usefulness of cash flows in the prediction of future cash flows or more specifically profitability. This paper focuses on some other determinants of future profitability apart from the components of net income. It finds that the debt-equity ratio of a firm is also a deciding factor among the accrual components and past earnings.