Financial reporting theory

1
Financial reporting theory
Earning prediction is better, Compared with cash
flow prediction
Presented by Wong Hau Lun, Stanley

50185329
2
Agenda

• The definition of Earnings
• The definition of Cash Flow
• Comparison between prediction of Earnings and of
  Cash Flow
• Advantages over the Cash Flow prediction
• Conclusion

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Definition of Earnings
Earnings-basic (according to statement 2.105)

• All items of income and expense which are
  recognized in a period, including tax expense,
  extraordinary items and minority interests, are
  included in the determination of the net profit
  or loss for the period. The amount of net profit
  attributable to preference shareholders,
  including preference dividends for the period, is
  deducted from the net profit for the period (or
  added to the net loss for the period) in order to
  calculate the net profit or loss for the period
  attributable to ordinary shareholders.

4
Definition of Cash Flow
Cash flows

• are inflows and outflows of
  cash and cash equivalents.
• Cash comprises cash on hand and demand deposits.
• Cash equivalents are short-term, highly liquid
  investments that are readily convertible to known
  amounts of cash and which are subject to an
  insignificant risk of changes in value.

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Definition of Cash Flow
Examples of cash flows from operating activities
are

• (a) cash receipts from the sale of goods and the
  rendering of services