Total Cash Flow Research Articles

Effect of delayed breeding during the summer on profitability of dairy cows

The objective of this retrospective observational cohort study, combined with simulation, was to evaluate the effect of extending the voluntary waiting period (VWP) during the summer on profitability on a Florida dairy farm. Data from Holstein cows (n=1,416) that calved between June and September of 2007 and 2008 were used. Cows that calved between June 1 and July 21 (regular group; REG; n=719) were artificially inseminated (AI) for the first time upon estrus detection (ED) after the second PGF2α of the Presynch protocol administered between 57 and 63d in milk (DIM), or underwent timed AI using the Ovsynch protocol (TAI) if not detected in estrus. Cows that calved between July 22 and September 18 (extended group; EXT; n=697) underwent AI for the first time after the first or second PGF2α starting November 14 or November 21 or underwent TAI if not detected in estrus. For second and subsequent AI, all cows underwent AI upon ED or enrolled on TAI after nonpregnancy diagnosis. Following these schemes, average VWP in the REG group and EXT group were 60 and 83d, respectively. Overall profitability for both experimental and subsequent parities were calculated by subtracting the costs existing of feeding costs ($0.30/kg lactating cow diet; $0.25/kg dry cow diet), breeding costs ($2.65/dose PGF2α; $2.40/dose GnRH; $0.25/injection administration; $10/semen straw; $5/AI; $3/pregnancy diagnosis), and other costs ($3/d) from the daily revenues with milk sales ($0.44/kg of milk), cow sales ($1.76/kg of live weight), and calf sales ($140/calf). A herd budget simulation was used to predict future cash flow after culling or end of subsequent parity until 6yr after the start of the study to account for all cash flow consequences of extended VWP. Cows in the EXT group had greater first-service pregnancy per AI (PAI1) but still had greater days open and calving interval. Delaying breeding did not affect total cash flow because the EXT group had greater combined profitability for the experimental parity and subsequent parity but lesser future cash flow. Delayed breeding during the summer increased PAI1 but did not improve overall reproductive efficiency and did not affect overall profitability.

Impact of Convergence to International Accounting Standards in Brazil on The Informational Content of Accounting

This article investigates the impact of the process of convergence to international accounting standards in Brazil on the informational content of accounting, focused on the changes in the main accounting and financial ratios and on the relevance of accounting information. For this purpose, we analyzed publicly traded nonfinancial companies, considering information for 2009, disclosed at the start of 2010 (BRGAAP – partial IFRS) and for the same year, disclosed at the start of 2011 (full IFRS). The purpose of analyzing the data for 2009 was to isolate any other influence found in the accounting statements that did not come from the alteration in accounting standards. The results indicate that the indicators Indebtedness (DEBT), Asset Turnover (AT), Gross Margin (GM), Operating Cash Flow over Total Assets (OPCFA) and Operating Cash Flow over Stockholders’ Equity (OPCFE) are lower in the financial statements prepared according to full IFRS. Analysis of the informational capacity of Net Income by means of regression allowed detecting that Net Income has higher explanatory power of the behavior of stock prices under full IFRS. With respect to the informational content of Stockholders’ Equity, the results indicate no significant change in explanatory power on the behavior of stock prices.

Aggregate Return on Investment under Uncertainty

This paper deals with capital budgeting decisions under uncertainty. We present an Aggregate Return On Investment (AROI), obtained as the ratio of total (undiscounted) cash flow to total invested capital and show that it is a genuine rate of return which, compared with the risk-adjusted cost of capital, correctly signals wealth creation. For choosing between two mutually exclusive projects, we derive an incremental AROI and an incremental risk-adjusted cost of capital, by means of which two unequal-risk projects can be correctly compared. Iterating the incremental procedure, we show that the AROI approach correctly ranks any bundle of different-risk competing projects. Relations with other criteria such as Modified Internal Rate of Return, Average Internal Rate of Return, Cash Multiple, and Profitability Index are provided.Theoretically, the AROI approach constitutes a link between arbitrage choice theory and corporate investment theory, and shows that explicit discounting is not necessary for measuring economic profitability.Practically, the AROI is a user-friendly, easy-to-compute rate of return derived from the same set of data required by the net present value (NPV). Also, it does not incur the difficulties met by the internal rate of return: in particular, it is unique and it is based on economically significant capital values (i.e., market-driven values). As such, the AROI significantly expresses the efficiency of the project's invested capital.

Assessing the treatment costs and the fertilizing value of the output products in digestate treatment systems

The objective of this paper was to advance towards finding sustainable solutions to deal with biogas digestate and contribute to faster development of the market for digestate treatment products. The study compares digestate treatment costs through four different treatment plants, estimates the potential fertilizing and humus value (PFHV) of the derived products and allocates the cash flows to show the possible regional benefits. The treatment costs for the pre-dried solid fraction of digestate ranged from €19 to €23/tonne output. These costs may be covered by vending treatment products at a price reaching at least 34-41% of their PFHV (ca €55/tonne). Treatment of raw digestate generates high operating costs (€216-247/tonne output), much higher than the PFHV of the products (ca €35-51/tonne). For such systems either the treatment has to be financially subsidized by the authorities or €13-32/tonne input should be covered by the substrate deliverers as a disposal fee. Nevertheless, a well-prepared investment concept in this field may allow the local binding of up to 80% of total cash flows. Finally, the current difficult market situation of the treatment products can be primarily improved by clearing their legal status at European level.

IMPACTO DA CONVERGÊNCIA ÀS NORMAS CONTÁBEIS INTERNACIONAIS NO BRASIL SOBRE O CONTEÚDO INFORMACIONAL DA CONTABILIDADE

This article investigates the impact of the process of convergence to international accounting standards in Brazil on the informational content of accounting, focused on the changes in the main accounting and financial ratios and on the relevance of accounting information. For this purpose, we analyzed publicly traded nonfinancial companies, considering information for 2009, disclosed at the start of 2010 (BRGAAP – partial IFRS) and for the same year, disclosed at the start of 2011 (full IFRS). The purpose of analyzing the data for 2009 was to isolate any other influence found in the accounting statements that did not come from the alteration in accounting standards. The results indicate that the indicators Indebtedness (DEBT), Asset Turnover (AT), Gross Margin (GM), Operating Cash Flow over Total Assets (OPCFA) and Operating Cash Flow over Stockholders’ Equity (OPCFE) are lower in the financial statements prepared according to full IFRS. Analysis of the informational capacity of Net Income by means of regression allowed detecting that Net Income has higher explanatory power of the behavior of stock prices under full IFRS. With respect to the informational content of Stockholders’ Equity, the results indicate no significant change in explanatory power on the behavior of stock prices.

Managing long-term capacity in the age of conservation

This paper illustrates the long-term planning challenge for water utilities in the age of conservation using detailed operating data of three sampling entities from the mid 1990s to 2009. The induced behavioral change from conservation measures is found to be of a permanent nature and the unit consumption to be in long-term descent. This in turn may call for a paradigm change in pricing and capacity planning for utilities. The ever-declining per capita consumption alters many commonly acknowledged norms for utilities, in particular for fast growing ones that may have taken on additional financial leverage to support previously anticipated growth. If not managed properly, the full cost recovery mechanism of pricing may force those utilities into an unsustainable future of ever-decreasing total demand and ever-increasing cash flow shortfall. Collection of more detailed water demand data in a timely fashion may prove to be a necessary exercise for sound management of median to large water utilities.

Lifetime Expected Income Breakeven Comparison between SPIAs and Managed Portfolios

This paper provides insight and guidance for the retiree decision making between whether to annuitize or manage their retirement savings. Tables and graphs demonstrate the breakeven age between annuitizing with a single premium immediate annuity (SPIA) versus managing a portfolio and the likelihood of outliving the breakeven cash flow sums for various annuitization ages (65 to 85), longevity percentiles of Period Life Tables, and portfolio allocations. What are breakeven asset allocations below which a SPIA provides a higher lifetime expected total cash flow? Managed portfolios retain a balance at death while SPIAs have none. How does the cash flow breakeven comparison change when that balance is, or is not, considered? Does age matter in the decision to switch from a managed portfolio to a SPIA? Is there a different conclusion if different tables are used (Social Security Table General Population vs Annuity 2000 Table (Healthy Population))? How do good vs median vs poor markets affect the breakeven comparison? How do fees affected the comparison? Can the Annual Payout Rate (APR) of a SPIA be useful in the decision making process? A more descriptive paper, without data Appendices and different figures, and fewer pages has been added to SSRN in abstract http://ssrn.com/abstract=2352252. This abstract http://ssrn.com/abstract=2317857 contains the data, figures and appendices that support the work described in more and better detail in http://ssrn.com/abstract=2352252, which also has a description for a practical application that is easier to do compared to the methodology used to produce that data in these two abstracts. Note: The cash flow in this paper is based on zero asset management fees, ½% fees or 1% fees. However, note that the fees are taken from the cash flow, not the portfolio balance, in this paper. This tilts the analysis in favor of SPIAs. Example: a 1% fee on a $500,000 portfolio would be $5000 for the year. If the cash flow for that year was calculated to be $25,000 (5% of portfolio value), then the net cash flow to the retiree would be $20,000 ($25k - $5k). However, if the portfolio itself pays the management fees, which is more common, then the $5,000 fee in this example would come from the $500,000, thus the cash flow calculation would be 5% on the $495,000 portfolio => $24,750 net to the retiree. Cash flow in this paper is based on the prior form, and thus biases the results towards SPIAs earlier than would normally be the case.

Benchmark approach for defaultable claims under partial information

We study the pricing and hedging of defaultable claims under the benchmark approach, introduced by Platen and Heath (2006), with partial information. The model is considered to be driven by an Ornstein–Uhlenbeck (OU) process. We fist convert the partial information model to a complete information model through the innovation process approach by deriving the non-linear filtering equation for the unobservable processes. We then define the total cash flow and use the Schweizer (2008) methodology for hedging the cash flow under the real world probability measure.

The effect of price changes on optimum cut-off grade of different open-pit mines

Maximizing economic earnings is the most common goal in cut-off grade optimization of open-pit mining operations. When this is the case, the price of the product has a critical effect on optimum value of cut-off grade. This paper investigates the relationship between optimum cut-off grade and price to maximize total cash flow and net percent value (NPV) of operation. In order to visualize this relationship, two hypothetical mines were employed. To determine the optimum value of cut-off grade in different cases, two nonlinear programming models were formulated, and then, all models were solved using Solver in Excel. The results show that the optimum cut-off grade would always be a descending function of price when we intend to maximize total cash flow. On the other hand, this function may be descending or ascending when we intend to maximize NPV. This result also reveals that both maximum cash flow and maximum NPV always increase and decrease, respectively when the price of product increases or decreases.

공동주택 공사의 현금흐름 예측 모델 개발에 관한 연구

Many construction companies are simultaneously carrying out numerous projects in the housing construction industry. It is essential to accurately forecast the cash flow of a project through optimal process management and resource input in order to manage funds rationally and enhance the competitiveness of a company. Current cash flow forecasting methods offer lower accuracy due to a large gap between the revenue and expenditure element. Expenditure elements depends on the real-time changing actual cost for work performed. This research survey was conducted on the actual state of construction management of K company to investigate the problems of cash flow forecasting. To achieve this, the work process and construction management system were integrated to improve the cost management system of K company. To accurately forecast the cash flow of a project, revenue and expenditure elements were displayed in the total cash flow forecast window. This research is expected to assist in the implementation of a system of cash flow forecasting on housing construction by excluding negative elements of revenue and expenditure.

The Effect of CEO Hiring Source on Total Cash Flow

We examine the financial performance that boards of large U.S. firms realize by their decision to hire a new CEO from within the firm versus externally. Using a structural self-selection modeling approach, we find, for boards that promote internally, greater total cash flows than would have been obtained from the passed over external candidate (a marginal gain). On the other hand, for boards that hire externally, we find less total cash flow than would have been obtained from the passed over internal candidate (a marginal loss). This marginal loss is primarily explained by our addressing two concerns involving method and measure. First, we include all CEOs regardless of tenure to avoid (survival) bias. Second, we account for cash expenses not included in operating income, such as the expense of ongoing operations that will be discontinued and the cost of restructuring; these expenses are primarily associated with externally hired CEOs. Our analysis suggests boards do not account for the marginal loss we document in their decision to externally hire a CEO. Further, associated with search firms’ rising revenues and greater pay for placing an outside CEO, we find an increasing frequency of external hiring and increased marginal losses, especially among S&P 500-size firms where search firms are primarily employed.

The effect of earnings-based analysis 'change over financial analysts' investment decisions in Egypt

This paper uses a cross-sectional approach to examine whether earnings-based analysis change ΔEBA affects financial analysts investment decisions in EGYPT. We measure ΔEBA’s effect by the positive correlation of firm’s earnings quality change represented by change in total accruals, total current accruals and cash flow from operations, and by firm’s earnings persistence change ΔEP, earnings power change ΔEP, and earnings valuation represented by changes in price/earnings and price/book ratios, with its change in stock prices. We find that change in stock prices which is used as an indication for financial analysts’ investment decisions is affected by earnings quality change represented by changes in total and current accruals and cash flows from operations, as well as by earnings valuation represented by price earnings ratio change.

An Irreversible Investment Problem with Maintenance Expenditure

This paper studies the optimal investment problem with maintenance expenditure of a firm under uncertainty. We assume that the investment is irreversible and the maintenance cost of the firm has positive effects on its stochastically growing capital productivity. The objective of the firm is to construct optimal investing and maintenance policies to maximize its expected total cash flow over the infinite time horizon. We adopt the penalty method to obtain a solution of the variational inequality associated with the optimization problem. The optimal solution of barrier type for the investment-maintenance problem is shown to exist.

Earnings Management: A Case of New Zealand Listed Property Trusts

Existing literature of earnings management focuses on a wide range of firms and large corporations. However, LPTs are usually limited in the use of accruals for earnings management because of the characteristics of real estate investment. This paper examines earnings management strategies among New Zealand LPTs by using itemized contributing elements of total cash flow incorporating fundamental direct property data, such as average lease term and vacancy rates. Using White’s heteroscedastic-correction estimate, the model specification using total cash flow rather than itemized elements revealed significant results for average lease term and accruals playing little role in future earnings. When itemized elements of total cash flow were analyzed, fundamental property variables were not significant, with contributory elements of total cash flow providing the best estimator of earnings next period. These findings suggest that New Zealand LPTs use different earnings management strategies than the literature dealing with a wide variety of firms would suggest. Additionally, this paper reveals that when contributory elements of cash flow are available to investors, that indicators of fundamental underlying direct property performance is of limited benefit for estimating earnings.

Investment Decisions and the Subjective Valuation of Incentive-Based Compensation

I develop a partial equilibrium agency model in a real options framework to examine how a manager with nontransferable compensation makes investment decisions in a complete world. Contrary to conventional wisdom, I find that the compensation options cause the delay of investment because the self-interested manger wants to keep the high total volatility to increase the value of his compensation options, the compound options on investment options. This result is consistent with the conclusion by Carlson, Fisher, and Giammarino (2004) that the firm becomes less risky after investment. In addition, my results provide new insight into the relationship between ownership and firm performance. Specifically, I find that the undiversified fraction of the manager's wealth concavefies the investment threshold and the value of the investment option. My decomposition of investment and exercise thresholds suggests that the idiosyncratic volatility causes the manager's subjective value reduction and early exercise of stock options, while the total cash flow volatility increases the values of both the investment and compensation options. An alternative explanation for the early exercise of his compensation option, the option on the investment option, is that the manager wants to avoid the decline of the total volatility due to the investment.

Interim Reporting and Accounting Quality

We investigate the effect of interim reporting on accounting quality. We assume that the manager has a preference for a high stock price. The manager may bias accounting reports in each sub-period. We assume that the enforcement system ties sanctions to the detected gap between total reported earnings and total cash flows at the liquidation stage. We show that there are many circumstances where interim reporting does not improve accounting quality; sometimes interim reporting even reduces it. The result is driven by the fact that biasing reports in shorter intervals goes along with lower incremental sanctions at each reporting stage. However, if effective, the bias leads to the same manipulated stock price as does an analogous reporting bias for the longer period. The incentive for increased misreporting with interim reporting is present in multiple equilibria. If there is an earnings-inflating equilibrium, the above negative effect may be offset by improved timeliness. If there is an earnings-deflating equilibrium, interim reporting unambiguously reduces accounting quality.

The Financial Outcome of Hiring a CEO from Outside the Firm

We investigate the financial result of boards’ choices to promote a new CEO from within the firm or hire externally, at large U.S. public firms between 1986 and 2005. This choice theoretically maximizes profits. Additionally, choosing a new CEO from outside the firm influences labor market demand and compensation for top executives. We use the structural self-selection modeling method to determine the performance (total cash flow) boards would have obtained by choosing the passed-over type of hire. The method accounts for boards that self-select their hiring source (inside or outside) to maximize profits. The model uses instrument variables that affect the decision to hire externally but are uncorrelated to firm performance. Standard methods are used to address any remaining concerns related to endogeneity, firm fixed effects, and truncation bias. Extensive robustness tests are run. Results are verified by using advanced matching estimators. Our results show that an economically significant gain is realized, on average, by hiring internally relative to what would have been obtained by hiring externally, whereas an economically significant loss is realized by hiring externally. This result is a) robust to analysis method, performance measure, and model specification, b) holds regardless of the time period, for both S&P 500-size and Forbes 800-size firms, and c) is not significantly changed by removing interim CEOs. Ours tests suggest the loss obtained when hiring externally is not attributable to weak governance or greater risk taking by outside hires to obtain superior performance. Instead, our results suggest that boards are unknowingly missing critical information about external candidates, which results in their decision to hire externally and a subsequent loss of profits. Our result can help explain the major trends in corporate governance and CEO compensation since 1934.

A Method of Evaluating Profitability and Risk of Multiple Investments Applying Internal Rate of Return

In todays uncertain economic environment, economic risk is inherent in making large investments on manufacturing facilities. It is, therefore, practically meaningful to divide investment over multiple periods, reducing the risk of investment. Then, the cash-flow over the entire planning horizon would comprise positive inflow and negative outflow. In this case, in general, evaluation by internal rate of return (IRR) is not feasible, because multiple IRRs are involved. This paper deals with a problem of evaluating profitability, as well as risk, of investment alternatives made in multiple times of investment over the entire horizon. Typically, an additional investment is required after the initial one, for expanding manufacturing capacity or other reasons. The paper pays attention to a unit cash-flow over two periods, decomposing the total cash-flow into a series of unit cash-flow patterns. It is easy to evaluate profitability of a unit cash-flow by using IRR. The total cash-flow can be decomposed into the series of two types of unit cash-flows: an investment type one (negative-positive) and the borrowing type one (positive-negative). This paper, therefore, proposes a method in which only the borrowing type unit cash-flow is eliminated in the series by converting total cash-flow using capital interest rate. Then, a unique IRR can be obtained and the profitability is evaluated. Thus, the paper extends the method of IRR so that it may help decision making in complicated cash-flow pattern observed in practice.

Using Project Financing for Mitigating Asymmetric Information Problems

Brennan and Kraus (1987) show that an efficient separating equilibrium in a financing game where the firms have private information about their cash flows does not exist if the cash flows are ordered by the first-order dominance condition. In the present note we relax their assumption about cash flow indivisibility. We show that when the cash flow is divided in parts (projects) and the firms are allowed to issue securities with projects’ cash flows contingent on payoffs, a separating equilibrium may exist even if the firms total cash flows are ordered by the first-order dominance condition.

Corporate governance and financial distress: evidence from public- listed electronics companies in Taiwan

The purpose of this paper is to construct a financial distress pre-warning model by financial ratios and corporate governance variables for investors and risk supervisors. Through the Securities and Futures Institute network, we collect the financial and corporate governance data of the electronic companies listing on the Taiwan Security Exchange (TSE) from 1998 to 2005. By binary logistic regression test, we found that return on total assets (ROA) and cash flow ratio show significant difference in different financial stages. Besides, we find that if used financial ratios combined with corporate governance variables to construct a financial distress pre-warning model, it could get better prediction validity than only used financial ratios.