The Usefulness of Accounting Estimates for Predicting Future Cash Flows and Earnings

Prediction is a key factor in economic decisions. Investors and shareholders are often looking for profits and cash flows and therefore they are estimating the benefits and value of future cash dividends. The main objective of this study is to evaluate the relationship between accounting estimates and forecasts of future earnings and future cash flows are predicted. The estimates made ​​by management, in predicting future profits and cash flows are useful and effective. This study is descriptive and the method used to evaluate the correlation between the variables is regression. Predicting future cash flows of the entity's cash flow from operations (CFO) and free cash flow (FCF) is used. Results indicate that, unlike the free cash flow, operating cash flow cannot be predicted from the components of accruals. Also, for profit, operating profit of the two indices (OI) and net income (NI) has been used, the results of hypothesis testing indicated that the accounting estimates and accruals components, operational variables are not suitable for predicting the other hand; the results indicate the desirability of these variables for predicting a net profit