- Feb 21, 2017
Cash flows never lie.
In a Reuters article, investors are encouraged to value what they can count over what they are told. After all, companies can fake their earnings and valuation is subjective.
Ivey Professor Stephen Foerster, along with John Tsagarelis and Grant Wang of Highstreet Asset Management, published a new paper called "Are Cash Flows Better Stock Return Predictors Than Profits?" that presents a way to better measure corporate cash flows.
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“We believe that the lack of uniformity among reported statements and their disjointed presentations make it extremely difficult for investors to test the quality of a corporation’s historical earnings and compare the results within and across industries,” Foerster, Tsagarelis, and Wang write.
“Our study shows that by using a standardized 'direct cash flow' template, investors can better understand a company’s historical, contemporaneous, and forecasted return potential.”