The relationship between earning accrual component and earning cash component with return and dividend

Abstract

Accounting and financial reporting as an information system is responsible for satisfying informational needs for users of financial reports, especially shareholders and credit holders. Thus, the most important goal of accounting in the view of users is to provide and to offer useful information for user decision making. Power of offering useful information to facilitate their decision making procedure in the light of future situation is known as accounting information predictability. Since accounting takes into account needs of information users, it is important to offer accounting earnings for measuring and estimating firm performance and fare casting profitability and operational cash flows. Therefore, understanding the role and features of the accounting earnings and its components to fare cast firm future profitability is one of the major subjects in the accounting theory and accounting research literature. Different queries from financial investors and analysts have shown that , even though to analyst cash flows Indicating information content of earning accruals and earning cash flows to forecast return and dividend. Profitability information has preference over cash flows. In this research, the relation between an earning accrual component and earning cash component with return and dividend was studied. To test the hypothesis, 96 firms as sample were chosen. To test hypothesis 1, first we calculated variations in the accruals independent variable (ACC) and operational cash flows (CFO). Next, we have calculated return dependent variable (RET). Also, to test hypothesis 2, using accruals independent variable (ACC) and operational cash flows (CFO), we investigated the relation between operational cash flows (CFO) and accruals and we calculated dividends dependent variable (DIV) .The research results show that there is a direct and meaningful relation between earning accruals and earning cash flows and return. Also, there is a direct and meaningful relation between earning accruals and earning cash flows and dividend. These finding have concluded that even though we cannot rely on accruals and cash flows to forecast next period earning, we can forecast return and dividend of next period with accruals and cash flows.