Determinants of analysts' cash flow forecast accuracy

Abstract

This article examines factors affecting the accuracy of cash flow forecasts issued by financial analysts. Consistent with previous findings on earnings forecast accuracy, analyst and forecast characteristics-including cash flow forecasting frequency, cash flow forecasting experience, the number of companies followed, forecast horizon, and past cash flow forecasting performance- determine cash flow forecast accuracy. The authors find that forecasting cash flows is distinct from forecasting earnings. Compared with earnings forecasting experience and past earnings forecast accuracy, cash flow-specific forecasting experience and past cash flow accuracy better explain current cash flow forecast accuracy. The authors also find that individual cash flow forecasts are unlikely to be naïve extensions of earnings forecasts. Investors may utilize the present findings to identify more accurate cash flow forecasters. © 2012 SAGE Publications.