Time-series properties and predictive ability of funds flow

The objective of a recent study is to provide descriptive evidence that documents the statistical patterns of the cash flow and working capital series for a sample of firms. The results suggest that the time-series behavior of the cash flow series is in marked contrast to the models typically employed for accounting net income. The empirical evidence indicates that the statistical patterns of the cash flow series stand in marked contrast to the well-documented characteristics of quarterly earnings data. Cash flow series are modeled parsimoniously by purely seasonal time-series models. Evidence is also presented that working capital from operations exhibits time-series behavior virtually identical to that of accounting earnings. This results in identification of ARIMA expectation models quite similar to those popularized for quarterly earnings.