Searching for the Best Operating Funds Flow Measures of Cash, Net Quick Assets, and Working Capital in Predicting Future Cash Flow

Date of Submission


Document Type


Degree Name

Master of Science in Accounting




Robert McDonald


Corporations--Cash position--Forecasting--Econometric models, Corporations--Accounting--Econometric models, Cash flow--Econometric models

Call No. at the Univ. of New Haven Library

AS 36 .N29 Acc. 1990 no. 3


Users of financial statements have been showing an increased interest in cash flow information and cash position of a company in the future. Presumably, if financial statements had been designed to help recognize that cash flow problems were occurring, many firms that experienced bankruptcy might be operating today.

Three operating funds flow measures (working capital, net quick asset, and cash) reflected in the statement of cash flow have shown to be good predictors of future cash flow. It is, however, crucial to determine which operating funds flow measure is the best and most effective predictor of future cash flow. Users of financial reporting, using the best measure, will be able to analyze and evaluate an enterprise's cash flow position current and future and whether the enterprise is going to remain strong or weak, solvent or insolvent, and its ability to generate positive future cash flow.

Although no certain funds flow measure was found to be the best predictor in all circumstances, working capital from operations was considered most reliable in many circumstances. However, in some circumstances cash flow and net quick assets from operations may be the better predictors of future cash flow.