Investigation of Accrual Reliability and Prediction of Future Cash Flows in Select Companies Listed in Tehran Stock Market

Nowadays, business enterprises tend to identify all factors contributing to their development and achievement of goals. Cash flow is a factor that may significantly affect the achievement of goals so that lack of prediction and planning on future cash flows may bring about serious problems to business enterprises. The present study investigates accrual reliability and prediction of future cash flows in a number of select companies listed in Tehran Stock Exchange (TSE). The study adopted a descriptive-correlational method. In terms of purpose, the study is considered as an applied research. The population of the study consisted of all companies that were active in TSE from 2006 to March 20, 2010. The companies had to meet several criteria in order to be included as the research sample. In this regard, from among all companies listed in TSE, a number of 187 companies were selected as the research sample. The independent variables were considered to be all components of accruals including trading accruals, non-trading accruals, financial obligations, trading assets, trading liabilities, non-trading assets, non-trading liabilities, financial assets and financial liabilities. Future cash flows were considered as the dependent variable. Both descriptive and inferential statistics were used to analyze the data. Kolmogorov-Smirnov test was run to examine the normality of the data. Besides, Pearson correlation coefficient, coefficient of determination and linear regression analysis were run to test research hypotheses. The results showed a significant correlation between independent variables and future cash flows. Considering financial obligations, financial assets and liabilities were the strongest predictors of future cash flows. From among the accruals in the balance sheet, financial accruals were found to be the best predictors of future cash flows, which may be considered as the major source of future cash flow predictions. Viable recommendations are made for future studies on the topic at the end of the paper.