The Ability of Core and Non-Core Cash Flows from the Operations in Predicting the Future Cash Flows

Abstract

Pertiwi, Puti Laksmi Budi (2005). The Ability of Core and Non-Core Cash Flows From The Operation In Predicting Future Cash Flows. Yogyakarta. Faculty of Economics. Islamic University ofIndonesia. This study tries to investigate the ability of current cash flows from operation to predict the future cash flows and the ability of cash flows component (core and non-core) to predict the future cash flow in manufacturing companies that are listed in Jakarta Stock Exchange from the period of 1996-2003. This study also tries to investigate the different persistent level between aggregate cash flow from operation in current year and accruals components to predict the future cash flows, and tries to prove that cash flow components are incrementally informative beyond accrual components in predicting the future cash flow. This study proposes a cash flow prediction model that distinguish cash flow from operation into core and non-core cash flows based on AICPA's recommendation, in Indonesia. The study uses linear regression model with the aggregate future cash flow from operation as the dependent variable. From this research we can derive the conclusion that in conformity with AICPA recommendation. This research find that aggregate cash flow operations have the ability to predict future cash flows. And by disaggregating cash flow from operation, we find that cash flow from operation have different persistence level in predicting the future cash flow. Disaggregating accruals in the prediction model and aggregate cash flow from operation on future cash flow will lead some conclusions that aggregate cash flow are incrementally informative beyond accruals components in predicting the future cash flow. And by disaggregating the component ofcash flows from operation and accruals components on future cash flow, it will prove that cash flow component are incrementally informative beyond accruals component in predicting the future cash flows.