The Usefulness of Core and Non-Core Cash Flows in

We extend the Barth, Cram, and Nelson (2001) model with disaggregated accruals by investigating whether cash flow components (core and non-core cash flows) improve cash flow predictability. BCN investigate the role of accrual components in predicting future cash flows while this study extends their study by investigating the role of cash flow components. We propose a cash flow prediction model that decomposes cash flows into cash flow components that parallel the presentation and format of operating net income from the income statement. Consistent with the AICPA’s and financial analysts' recommendations, and as predicted, we find that cash flow components do reflect different information relating to future cash flows. We also find that the disaggregation of cash flow into the BCN Model significantly enhances cash flow prediction. Hence, the inclusion of cash flow components and accrual components provide significant improvement in cash flow prediction than aggregate cash flows and accrual components alone.