Further evidence of the relationship between accruals and future cash flows

Focusing only on operating accruals in accrual-based studies results in a loss of information and noisy measures of both accrual and cash flow components of earnings. Thus, we examine the relative importance of working capital accruals, non-current operating accruals, and financing accruals with regard to future cash flows from operations (CFO). Using Australian data, we provide evidence that both working capital and non-current operating accruals are important for explaining future CFO but that the contribution of financing accruals is not significant. Moreover, the asset component of accruals plays a more important role in explaining future CFO than the liability component.