Traditional cash flow measures better predict future cash flows than earnings.
Operating cash flows may be important for valuing companies. A study in Australia found that traditional cash flow measures are not strongly related to a more refined measure. Traditional measures are closely linked to earnings, while the refined measure is less so. Traditional measures are better at predicting future cash flows than earnings or the refined measure. These findings apply across different industries, strengthening the validity of earlier research from the U.S.A.