ISSN: 0976-2876 (Print) ISSN: 2250-0138(Online) THE EFFECT OF COMPONENTS OF A 4 PARTS MODEL OF CASH FLOW STATEMENT ON OPERATIONAL PERFORMANCE IN FIRMS ENLISTED IN TEHRAN STOCK EXCHANGE YADOLLAH TARIVERDI a1, GHOLAMREZA FARSAD AMANOLAHI b AND FAHIMEH FAAL c ab Assistant Professor of Islamic Azad University, Central Tehran Branch, Islamic Azad University, Tehran, Iran c Islamic Azad University, Central Tehran Branch, Islamic Azad University, Tehran, Iran ABSTRACT This research has studied about the effect of 4 part cash flow statement elements on operating performance. Through cash flow statements, some important information is broadcast which affect the judgment and decisions of investors and firm's performance assessment. Research hypotheses were tested by using parametric tests and Pearson's correlation coefficient. Studying the results showed that there is a positive and meaningful relationship between cash flows resulting from investments' return and return on equity (ROE) and return on assets (ROA). Also there is a negative and meaningful relationship between cash flows resulting from dividends for financing and return on equity (ROE) and return on assets (ROA). Also the results showed that there is not a meaningful relationship between cash flows resulting from financing activities and return on equity (ROE) and return on assets (ROA). KEYWORDS: Cash Flows Resulting From Investments' Return, Cash Flows Resulting From Dividends for Financing, Cash Flows Resulting From Investment Activities, Cash Flows Resulting From Financial Financing Activities, Return on Equity, Return on Assets Cash flow statement, as the third main financial statement, shows the resources and consumptions of cash in a business unit during an accounting period. This statement is one of the most efficient reports to reflect the performance of business units regarding cash and reveals the required information about the creation and consumption of cash for the users of financial statements. On the other hand, the increasing development and complexity of economic activities and the emergence of different business units and formation of independent legal personalities and the necessity of presenting precise information, and more important than that, the type of perspectives towards the information presented in these units and legal personalities in internal and external decision makings of the company have led to invent methods and techniques in assessing companies regarding different aspects. Along with developments in accounting, these methods, techniques, and tactics were developed and completed and were posed to financial analysts and decision makers. Financial ratios were used as criteria to compare and analyze the financial health of economic entities and they were chosen as a standard criterion for investors and researchers in studying about financial states of companies. In the present research we tried to refer to the effect of the elements of cash flow statements and its 4 parts on operating performance of firms were recognized to observe what desirable effects they can have on users' judgments. THEORETICAL FOUNDATIONS OF THIS RESEARCH Accounting is an information system. This information system, as the most important subsystem of information management systems, is responsible to change financial data into financial information form. Thus, the most important and principal accounting product is financial statement and it is the most appropriate method to present information for the users. It should be noted that cash flow statement, or all financial statements will be efficient, effective, and reliable when they are transparent, comprehensive and are the best and most efficient ones fro the decision making by the users from among the present models and methods. Regarding the fact that there are different models to present statements, in this research we have chosen a 4 parts model which has more transparency and is more informative than other models. We tried to measure the effects of the elements in the model mentioned including: cash flows resulting from investment activities, cash flows resulting from financing activities, cash flows resulting from return on investments, and cash flows resulting from benefits paid for financing on operating performance criteria. On the other hand, the assessment and study of effective factors on firms' performances, 1 Corresponding author
which is considered as a measure to achieve organizational goals and includes financial and operating performances, is one of the most important financial problems and issues and therefore it is considered as the most fundamental factor in success of capital markets. Firms' performances can be assessed and recognized through financial ratios, changes in financial leverage, return on assets, return on investments, return on equity, efficiency and effectiveness, earnings per share and. For the present research we have chosen two measures of accounting performance criteria including return on assets and return on equity. The goal of the researcher is to find out whether each of elements of the 4 parts model can affect criteria and cash models of operating performance or not. Cash flow statement The final product of financial accounting process is to present financial information to different users such as internal and external users of a business unit in the form of accounting reports. The group of accounting reports aiming at supplying for information needs of external users of a business unit resides in financial reporting activity area [1]. Financial statements, as the main part of financial reporting process, help the reporting unit about financial status, financial performance, and financial flexibility of the business unit to benefit a broad continuum of users of financial statements in making economic decisions. Also financial statements are the best means to transfer information to outside of the business unit, on the whole. Financial statements should express what has happened during the year for the profit unit within the framework of financial information and in a desirable format (Alivar, 1997) [2]. Cash flows statement along with related accompanying notes, reflect input and output cash flows of a business unit during the period and isolate flows resulting from operations from flows resulting from other activities. This statement presents useful information regarding the ways to produce and consume cashes by the business unit. For example, cash flow statements show cashes resulting from operating activities and cashes consumed to repay financial facilities, stock profit division or reinvestment in order to hold or increase operating capacity. The most basic method to reduce the data and change it into a useful set is to categorize it. Categorization is a simple and low cost method which is used to understand mass piles of information. The main requirement is to know categories in this method. We should know categories through which certain phenomena occur. The more precise categorization will lead to clearer meanings and the related characteristics will be more comprehensible. To give meaning to the categorization, it should be carried out based on a certain criterion. Only after deep understanding of phenomena under investigations we can choose a proper criterion for categorization (Delavar, 2005). The main criterion to choose the number of classes and the content for each of them is the amount of help resulted from this selection for the users of financial statements to assess its nature, amount, and the liquidity of present resources, its applied role, and the amount and timing of commitments required for cash resources or probable cash resources (Accounting Standards Committee, 2007). Paragraph 20 of announcement number 5 of board of financial accounting standards (1984) claims that: categorization in financial statements fosters analysis through categorizing items regarding similar natures and the isolation of items different in nature. The principal step in presenting an appropriate categorization of cash flow statements, is that first of all these classes present the titles regarding the contents. In a better statement, first enough knowledge about each class should be achieved. Second, these classes presented for those users of financial statements should be comprehensible and there should be a possibility of comparing cash flows of different business units. For the first time, the 4 parts model was posed by Tariverdi in Iran because he believed that 4 parts model was derived from two dimensional thought. In this school of thought, it is made clear where it came from and where it has gone. In a better sense, a legal figure finances through owners and other persons (such as creditors), and then tries to invest using the financing to make benefits of it and finally pay profits through the returns gained for financing carried out. Thus, cash flow statement should present information within 4 main duties of investments, financings, return on investments, and profits paid for financing. Operating performance Today performance assessment is one of the most important financial problems in companies. By using firm performance methods appropriately we can find answers for the followings: to what extent firms have tried to enhance their investors' resources, what criteria
were considered by banks and entities in giving facilities to companies, what dimensions are considered by firm owners to reward managers, and finally what things are noticed by governmental foundations in relation with firms regarding legal obligations? Firms use different financial resources and different methods in order to administer profitable projects and achieve maximum return in order to increase the wealth of their stockholders. The ability of a company in determining internal and external resources of the organization, supplying capital, and preparing appropriate financial plans are among main factors affecting the growth and development of any company. These resources and the amount of their use is one of the effective factors in operating performance of firms. Business unit performance entails return resulting from resources controlled by the business unit and also it is a version of criteria to measure the achievement amount of organizational goals [4]. Financial researchers have done many studies regarding the introduction of some variables which have had the greatest descriptiveness and information content regarding the real performance of companies. In these studies often value relevance has been taken into consideration. Value relevance was defined as the relationship between accounting items and market value of stocks of a company in literature. The researchers were trying to recognize criteria which precisely represent operating performance of companies in their researches in the form of value relevance (Seyyednejhad-e-Fahim, 2002) [5]. Return on equity This rate is tested as one of the measures of operating performance. It is one of financial ratios that can be changed by management regarding their own goals (Jahankhani & Sajjadi, 1995). Return on equity or the specific value is the amount of net profit created in return to each Rial of equity and the increase or decrease of this ratio can create changes in profitability amount of stockholders of the company. Since usually the goal of management is to achieve maximum return for investment in business unit, this ratio is considered to be one of the criteria in measuring the success of business unit in achieving the intended target and usually users pay certain attention to it when they make decisions. In fact this ratio reflects the relationship between profits of the company and equity (Reza Tehrani, 2005). ROE = tax before net profit / total assets * total assets / equity Return on assets Return on assets, like return on equity, is one of criteria in measuring operating performance as a financial ratio which is calculated by dividing net profit after taxes into total assets (Nikbakht, 2009). Return on assets is related to production and sales skills of the company and is not affected by financial structures of the company. Regarding the fact that assets are shown in the form of net book value in balance sheet, the real value of assets may be much lower or higher than their book values. Thus, a low return on assets necessarily does not mean that assets should be utilized in another place. Also high return on assets does not mean that the company should try to purchase more of the same assets and gain more return. Today the formula for return on assets is one of the most important criteria to measure managers' efficiency specially to control investment centers. Responsibilities of managers in different fields were merged in return on assets' rate formula and are presented as a figure which is used to measure managers' efficiency in investment centers and considered as an appropriate criterion to allot investment cashes (Malakian, 2007). ROA = net profit / total assets PREVIOUS RESEARCHES Tariverdi & Rostami studied the relationship between 4 parts and 5 parts cash flow statements and return on stock. Based on testing the hypotheses, the results showed that the relationship between 5 parts model of cash flows statement and stock return was more than the relationship between 4 parts model of cash flows statement and stock return. Also the relationship between 4 parts model of cash flows statement and stock return was more than the relationship between 5 parts model of cash flows statement and stock return. Rahimi-e-Ashtiani studied about the relationship between accounting variables, operating cash flows, investment, and financing with stock return in Tehran Stock Exchange. Results of this research based on 6 hypotheses showed that there is a meaningful relationship between operating interest rate, net profit rate, operating cash flows, investment, and stock return. But there is not a meaningful relationship between sales growth rate of cash flows in financing and stock return. Moradzadeh & Nadalipour-e-Monfared studied the relationship between cash flows resulting from
financing activities and stock return. In this research it was pointed out that financing methods are among the main decision making fields by firms' managers in order to increase the wealth of stockholders. The main idea of most of the researches carried out was that whether firms' stock return is affected by their financing methods or not and if the answer is positive, what is the type of relationship. The research results showed that there is reverse relationship between cashes resulting from financing activities and stock return. Also there was not any meaningful relationship observed between cashes resulting from stock issuing and stock return but there was a meaningful relationship between borrowing and stock return [6]. Vida Mojtahedzadeh and et al studied about the relationship between financing and operating performance in firms enlisted in Stock Exchange. Results showed that not only financing does not have any effect on operating performance before and after that, but also the type and amount of financing does not have much effect on most measures of operating performance [8]. In other countries some people criticized cash flow statements regarding the presentation of a 3 part model such as Nurnberg, Largay, Monter and. They believed that this type of presentation hurts comparability. Results of a research carried out by Mills & Vyamvra showed that data and ratios in statements pay attention to the aspect about which stockholders are cautious and thus they can help to have an appropriate analysis by the company [10]. Ingram & Lee reported that they consider cash flows useful and necessary to assess business unit's performance because liquidity is an inseparable part of the performance of profit units [11]. Nurnberg presented criticisms, reasoning, and ideas about how to present cash flow statements in his theoretical studiers. He stated regarding announcement 950 of the board of accounting standards devisers by aiming at relieving the current paradoxes that: cash flows resulting from operating activities, investment, and financing do not entail the cash results of these activities. Thus, they should not be used in decision making and judgment models without modifications. Hertzel & et al studied the long-term performance of companies in New York Stock Exchange. Return on assets, ratio of operating income before subtracting depreciation and exploitations, and operating profit divided by assets were used to measure operating performance. Results showed that although market value of stock became higher when stocks were issued, those companies that supplied stocks privately during a 3 month period after the issuance of stocks gained a better performance [12]. RESEARCH HYPOTHESES Main hypothesis Elements of 4 part model of cash flow statement affect operating performance. Minor hypotheses 1. Cash flows resulting from return on investments affect return on equity. 2. Cash flows resulting from interest paid for financing affect return on equity. 3. Cash flows resulting from investment activities affect return on equity. 4. Cash flows resulting from financing activities affect return on equity. 5. Cash flows resulting from return on investments affect return on assets. 6. Cash flows resulting from interest paid for financing affect return on assets. 7. Cash flows resulting from investment activities affect return on assets. 8. Cash flows resulting from financing activities affect return on assets. RESEARCH METHOD Population and statistical sample In the present research all firms enlisted in Tehran Stock Exchange were included in a time range of 5 years between 2007 and 2011. Our research sample was selected by using a deletion method after applying some presuppositions. Research variables The variables in this research were divided into 3 groups as follows: Dependent variables Return on equity (ROE) Return on assets (ROA) Independent variables Cash flows resulting from investments' return (CFIR) Cash flows resulting from interest paid for financing (SF) Cash flows of investment (CFI) Cash flows of financing (CFF)
Control variables Size of firm i in the year t (SIZE i,t ) Leverage of firm i in the year t (LEV i,t ) Regression model of the research ROE = +β CFIR +β CFSF +β CFI +β CFF ROA = +β CFIR +β CFSF +β CFI +β CFF RESULTS OF RESEARCH Descriptive statistics In descriptive methods the main effort is to present tables and use descriptive statistics tools such as central tendency and dispersion to describe research data Table 1: Results of descriptive analysis to help the transparency of the issue. The descriptive statistics of research variables have been presented in table (4-1). Regarding the descriptive statistics we can divide the indexes mentioned above into central tendency and dispersion and other indexes. Central tendency indexes are average and mean. Dispersion indexes are standard deviation indexes. And other indexes are minimum, maximum, skewdness, and pulling. For example, the average leverage shows that most companies have a ratio of higher than %50 of debt to assets and it shows that the selected companies have used debts more than equity in their capital structure. This can finally result in increasing debt cost in capital structure. Variable Return on equity Elongation factor 6/982 Skewness -0/266 Standard deviation 0/315 Minimum -1/011 maximum 1/651 Median 0/281 Average 0/278 observations Symbol ROE Return on assets Cash flows resulting from investments' return Cash flows resulting from interest paid for financing 4/241 4/381 4/940-0/103 0/280-1/249 0/123 0/121 0/068-0/340-0/410-0/437 0/491 0/570 0/000 0/089 0/075-0/075 0/093 0/090-0/090 ROA CFIR SF Cash flows of investment 8/559-1/104 0/083-0/443 0/298-0/006-0/018 CFI Cash flows of financing 9/049 1/108 0/097-0/432 0/539 0/009 0/025 CFF Size of firm i in the year t Leverage of firm i in the year t 3/640 2/879 0/803-0/277 1/479 0/208 10/069 0/040 18/549 1/171 13/221 0/647 13/475 0/640 SIZE LEV Models' estimations and testing hypotheses The first stage to start hypotheses testing process is to study whether the data are normal. To study the data normality the following hypotheses were posed: H 0 : Data distribution is normal. H 1 : Data distribution is not normal. To test the hypothesis above, we have used Kolomogorov-Smirnov's test and the results were represented in table (4-2). Results of Kolomogorov- Smirnov's test showed that there is a normal distribution for variables such as return on equity, return on assets, firm size, and financial leverage. Therefore, regarding the fact that the dependent variables of the research have normal distribution, we can use parametric statistical methods. Table 2: Kolomogorov-Smirnov's test to measure data normality Variables ROE ROA CFIR SF CFI CFF SIZE LEV Kolmogorov-Smirnov Z 1/147 1/339 1/777 2/397 3/742 3/022 1/060 0/763 Asymp (sig) 0/152 0/091 0/004 0/000 0/000 0/000 0/228 0/606
Results of testing the first and fifth hypotheses The first research hypothesis states that: Cash flows resulting from return on investments affect return on equity. ROE, = β 0 + β 1 CFIR i,t +β 2 SIZE i,t+β 3 LEV i,t + ε it The fifth research hypothesis states that: Cash flows resulting from return on investments affect return on assets. ROA, = β 0 + β 1 CFIR i,t + β 2 SIZE i,t + β 3 LEV i,t + ε it Regarding the results of testing the first research hypothesis, the meaningfulness level of F-Limer statistic is 0.629, and regarding the results of testing the fifth research hypothesis, the meaningfulness level of F-Limer statistic is 0.811 which is more than the acceptable error level (%5). Thus, pooled data method is preferred to panel data method and in order to adjust the regression model we have used the pooled data method. Also regarding that in both hypotheses the meaningfulness level of F-white statistic has been 0.000, we can conclude that the regression has variance divergence. Thus, after removing standard error and variance divergence, the adjusted regression amounts were shown as the table below. Additionally, regarding the fact that in first hypothesis the meaningfulness level of Godfrey statistic was 0.491, and it was 0.088 in fifth hypothesis, we can conclude that the regression does not have a serial self correlation problem. In next step and regarding that in both hypotheses of 1 & 5, F statistic (0.000) has a meaningfulness level of below %5, the regression has had identification ability. Also since the meaningfulness level of cash flows resulting from investments' return (independent variable) was less than %5, we can say that cash flows resulting from investments' return have had positive and meaningful effects on return on equity and return on assets. For every unit of increase in cash flows resulting from investments' return, there would be an increase of 0.279 unit of return on equity and 0.218 unit of return on assets. Table 3: Results of testing first hypothesis 0/008 2/659 0/279 CFIR 0/000 3/549 0/026 SIZE 0/478-0/709-0/056 LEV 0/503-0/668-0/063 C 0/133 R Squar 0/129 Adjusted R Square 1/678 Durbin-Watson Prob. 0/000 10/944 F Prob. 0/491 0/688 Godfrey Prob. 0/000 23/167 F-white Prob. 0/629 0/647 F-limer Table 4: Results of testing fifth hypothesis 0/000 6/708 0/218 CFIR 0/000 5/323 0/012 SIZE 0/000-18/206-0/362 LEV 0/000 4/242-0/141 C 0/509 R Squar 0/507 Adjusted R Square 1/655 Durbin-Watson Prob. 0/000 223/50 F Prob. 0/088 1/060 Godfrey Prob. 0/002 2/866 F-white Prob. 0/811 0/396 F-limer
Results of testing the second and sixth hypotheses The second research hypothesis states that: Cash flows resulting from interest paid for financing affect return on equity. ROE, = β 0 + β 1 SF,t + β 2 SIZE i,t + β 3 LEV i,t + ε it The sixth research hypothesis states that: Cash flows resulting from interest paid for financing affect return on assets. ROA, = β 0 + β 1 SF,t + β 2 SIZE i,t + β 3 LEV i,t + ε it Regarding the results of testing the second research hypothesis, the meaningfulness level of F-Limer statistic is 0.639, and regarding the results of testing the sixth research hypothesis, the meaningfulness level of F- Limer statistic is 0.480 which is more than the acceptable error level (%5). Thus, pooled data method is preferred to panel data method and in order to adjust the regression model we have used the pooled data method. Also regarding that in both hypotheses the meaningfulness Table 5: Results of testing second hypothesis level of F-white statistic has been 0.000, we can conclude that the regression has variance divergence. Thus, after removing standard error and variance divergence, the adjusted regression amounts were shown as the table below. Additionally, regarding the fact that in second hypothesis the meaningfulness level of Godfrey statistic was 0.198, and it was 0.125 in sixth hypothesis, we can conclude that the regression does not have a serial self correlation problem. In next step and regarding that in both hypotheses of 2 & 6, F statistic (0.000) has a meaningfulness level of below %5, the regression has had identification ability. Also since the meaningfulness level of cash flows resulting from interest paid for financing (independent variable) was less than %5, we can say that cash flows resulting from interest paid for financing have had negative and meaningful effects on return on equity and return on assets. For every unit of increase in cash flows resulting from interest paid for financing, there would be a decrease of 0.950 unit of return on equity and 0.567 unit of return on assets. 0/000-5/600-0/950 SF 0/000 3/877 0/027 SIZE 0/799-0/254-0/020 LEV 0/094-1/674-0/158 C 0/100 R Squar 0/088 Adjusted R Square 1/717 Durbin-Watson Prob. 0/000 14/415 F Prob. 0/198 1/132 Godfrey Prob. 0/000 24/726 F-white Prob. 0/639 0/631 F-limer Table 6: Results of testing sixth hypothesis 0/000-11/421-0/567 SF 0/000 6/264 0/013 SIZE 0/000-17/977-0/347 LEV 0/009 2/617 0/085 C 0/558 R Squar 0/556 Adjusted R Square 1/686 Durbin-Watson Prob. 0/000 272/793 F Prob. 0/125 0/951 Godfrey Prob. 0/000 3/513 F-white Prob. 0/480 0/872 F-limer Results of testing the third and seventh hypotheses
The third research hypothesis states that: Cash flows resulting from investment activities affect return on equity. ROE, = β 0 + β 1 CFI i,t + β 2 SIZE i,t + β 3 LEV i,t + ε it The seventh research hypothesis states that: Cash flows resulting from investment activities affect return on assets. ROA, = β 0 + β 1 CFI i,t + β 2 SIZE i,t + β 3 LEV i,t + ε it Regarding the results of testing the third research hypothesis, the meaningfulness level of F-Limer statistic is 0.602, and regarding the results of testing the seventh research hypothesis, the meaningfulness level of F-Limer statistic is 0.727 which is more than the acceptable error level (%5). Thus, pooled data method is preferred to panel data method and in order to adjust the regression model we have used the pooled data method. Also regarding that Table 7: Results of testing third hypothesis in both hypotheses the meaningfulness level of F-white statistic has been 0.000, we can conclude that the regression has variance divergence. Thus, after removing standard error and variance divergence, the adjusted regression amounts were shown as the table below. Additionally, regarding the fact that in third hypothesis the meaningfulness level of Godfrey statistic was 0.094, and it was 0.091 in seventh hypothesis, we can conclude that the regression does not have a serial self correlation problem. In next step and regarding that in both hypotheses of 3 & 7, F statistic (0.000) has a meaningfulness level of below %5, the regression has had identification ability. But since the meaningfulness level of cash flows resulting from investment activities (independent variable) was more than %5, we can say that cash flows resulting from investment activities did not have meaningful effects on return on equity and return on assets. 0/354-0/925-0/126 CFI 0/000 3/817 0/027 SIZE 0/258-1/131-0/087 LEV 0/645-0/459-0/044 C 0/084 R Squar 0/084 Adjusted R Square 1/632 Durbin-Watson Prob. 0/000 6/302 F Prob. 0/094 2/193 Godfrey Prob. 0/000 21/253 F-white Prob. 0/602 0/685 F-limer Table 8: Results of testing seventh hypothes 0/114-1/582-0/081 CFI 0/000 5/712 0/013 SIZE 0/000-19/666-0/387 LEV 0/000 4/395 0/154 C 0/469 R Squar 0/466 Adjusted R Square 1/040 Durbin-Watson Prob. 0/000 190/538 F Prob. 0/091 2/018 Godfrey Prob. 0/000 3/925 F-white Prob. 0/727 0/510 F-limer Results of testing the fourth and eighth hypotheses The fourth research hypothesis states that: Cash flows resulting from financing activities affect return on equity. ROE, = β 0 + β 1 CFF i,t + β 2 SIZE i,t + β 3 LEV i,t + ε it The eighth research hypothesis states that: Cash flows resulting from financing activities affect return on assets.
ROA, = β 0 + β 1 CFF i,t + β 2 SIZE i,t + β 3 LEV i,t + ε it Regarding the results of testing the fourth research hypothesis, the meaningfulness level of F-Limer statistic is 0.565, and regarding the results of testing the eighth research hypothesis, the meaningfulness level of F- Limer statistic is 0.666 which is more than the acceptable error level (%5). Thus, pooled data method is preferred to panel data method and in order to adjust the regression model we have used the pooled data method. Also regarding that in both hypotheses the meaningfulness level of F-white statistic has been 0.000, we can conclude that the regression has variance divergence. Thus, after removing standard error and variance divergence, the adjusted regression amounts were shown as the table below. Additionally, regarding the fact that in fourth hypothesis the meaningfulness level of Godfrey statistic was 0.089, and it was 0.075 in eighth hypothesis, we can conclude that the regression does not have a serial self correlation problem. In next step and regarding that in both hypotheses of 4 & 8, F statistic (0.000) has a meaningfulness level of below %5, the regression has had identification ability. But since the meaningfulness level of cash flows resulting from financing activities (independent variable) was more than %5, we can say that cash flows resulting from financing activities did not have meaningful effects on return on equity and return on assets. Table 9: Results of testing Fourth hypothesis 0/490 0/689 0/090 CFF 0/000 4/059 0/028 SIZE 0/221-1/224-0/094 LEV 0/574-0/562-0/053 C 0/073 R Squar 0/069 Adjusted R Square 1/625 Durbin-Watson Prob. 0/000 5/235 F Prob. 0/089 2/311 Godfrey Prob. 0/000 21/575 F-white Prob. 0/565 0/739 F-limer Table 10: Results of testing Eight hypothesis 0/924 0/094 0/003 CFF 0/000 6/125 0/014 SIZE 0/000-19/634-0/391 LEV 0/000 4/164 0/145 C 0/466 R Squar 0/464 Adjusted R Square 1/632 Durbin-Watson Prob. 0/000 188/350 F Prob. 0/075 3/511 Godfrey Prob. 0/000 3/835 F-white Prob. 0/666 0/595 F-limer SUMMARY AND CONCLUSION The topical range of this research was bound to studying the effect of 4 parts model of cash flow statement on operating performance. The dependent variables included return of equity and return of assets. And independent variables were cash flows resulting from investments' return, cash flows resulting from interest paid for financing, cash flows resulting from investment activities, and cash flows resulting from financing activities. Also the ratio of leverage and firm size were considered as control variables. The location range for the research was firms enlisted in Tehran Stock Exchange during the years between 2008 and 2012. Analysis and interpretation of testing first and fifth hypotheses
Regarding that the research claimed: Cash flows resulting from return on investments affect return on equity, the hypotheses were tested and the results showed that in an assurance level of %99, there is a positive and meaningful relationship between return on equity and return on assets and cash flows resulting from investments' return. This relationship was gained through Pearson's correlation testing. This means that in response to one unit of increase in cash flows resulting from investments' return, return on equity increases %13.3 and return on assets increases %37.2. The reason is that increasing operating activities of the company such as purchase, sales, profit and will result in increasing cash flows resulting from these activities and this shows the desirable and appropriate performance of the company which results in increasing profits and since profitability is one of the most important factors in forming investments' return, increasing these flows will result in greater amount of the numerator of return on equity and return on assets and thus ROE and ROA will increase either. Thus, users and specifically the investors are absorbed by the companies that have high investment return. Therefore, our claim about these two hypotheses can be absolutely correct. Analysis and interpretation of testing second and sixth hypotheses Regarding that the research claimed: Cash flows resulting from interest paid for financing affect return on equity, and Cash flows resulting from interest paid for financing affect return on assets, the hypotheses were tested and the results showed that in an assurance level of %99, there is a negative and meaningful relationship between return on equity and return on assets and cash flows resulting from financing. This relationship in second hypothesis with a correlation coefficient of %21.5 showed that in response to one unit of increase in cash flows resulting from interest paid for financing, return on equity decreases %21.5. And in sixth hypothesis this shows a negative relationship between return on assets and cash flows resulting from interest paid for financing equal to %45.9 and it showed that in response to one unit of increase in cash flows resulting from interest paid for financing, return on assets decreases %45.5. The results gained were the same as were expected and the reason is that since in Iran most companies finance through debts and these debts are through stockholders or getting loans from banks, the interest and profit paid is more than the interest and profit gained and because the cost of interest and profit have a reverse relationship with earnings, their increase will reduce the profits. On the other hand, due to more amounts of output cash flows compared to input ones, there would be a reduction in liquidity and this will limit activities such as investment and access to profits. All these factors result in reducing the ratio of earnings to equity and a low return will be given to the stockholders. Analysis and interpretation of testing third and seventh hypotheses Regarding that the research claimed: Cash flows resulting from investment activities affect return on equity and return on assets, the hypotheses were tested and the results showed that there is not a meaningful relationship between return on equity and return on assets and cash flows resulting from investment activities. This means that the changes in one do not justify changes in the other and these two do not present the same information. The goal of every investment is to gain return and the investor accepts the risks of investment only for this reason that finally there would be a high amount of return gained. Thus, it was expected that in this hypothesis we should have observed a positive or negative relationship. Maybe the reason for lack of relevance between these variables can be justified in two ways. One is that the investments carried out in firms under investigations were not having enough efficiency or the cash flows resulting from sales and setup of investments have been greater than cash flows resulting from the purchase of investments that have not been reinvested and they were consumed in other things except the investment such as paying the debts. Another reason is that most investments by the companies under investigations were of long-term type in their primary stages and their recovery by the companies would be realized during the years after the present research being carried out. Also we can say that the transparency of 4 parts cash flow statement is due to this fact that the investment activities of a company can not show the return of that company solely. Analysis and interpretation of testing fourth and eighth hypotheses Results showed that there is not a meaningful relationship between return on equity and return on assets and cash flows resulting from financing activities. This means that in response to each unit of increase in cash flows resulting from financing activities, no increase or decrease would happen in return on equity and return on assets. This result was not an unexpected one because
financing affects profits in two forms. One is interest cost and the other is stock profit and its effect is reflected through first and second classes, that means cash flows resulting from investments' return and cash flows resulting from profit paid for financing. The other one is that if the financed resources are used for investment, its effect will affect profit through class 3 of statement. Thus, we can say that financing reflects its effect through other parts and on the whole, net cash flows resulting from financing affect cash flow and not profits. Thus, it does not have any effect on the ratio of profit to return on equity and assets. Results and findings of this hypothesis accord with those in Vida Mojtahedzadeh's research. RESEARCH SUGGESTIONS In order to use 4 part cash flow statements and performance assessment more effectively, doing researches in the following fields are suggested: Investors Based on the results of the present research it is suggested for investors to pay more attention to cash flow statements when they make decisions about investments. And not only they should study to understand firm's cash flow, but also all elements related to it and the reasons of increase or decrease of their cash flows should be investigated precisely and their effects on profit and also the expectations of the investments should be measured. Managers Regarding the fact that the goal of managers is to prepare the grounds for owners' confidence, they should take into consideration that one of the most important tools to absorb this trust is the reports transmitted through financial statements. Thus, financial statements, such as cash flow statements are extraordinarily important and management should try best to observe transparency and increasing the information content of it and try to present it in a way that the users are helped not only in assessing cash flows, but also in assessing performance. Accounting standards devising committee It is suggested to the board of devisors of financial accounting standards to prepare reliable, more transparent and high information content statements due to the high importance of cash flow statements in case there are models or methods and in case it has a deeper effect on decision making by the users (for example 4 part model), the models should be investigated and if they are appropriate, they should substitute the model being used. REFERENCES Auditing Organization, Technical committee, 2012. Alivar, Aziz (1997). Cash flow statement. Professional research center for accounting and auditing researches, No. 97. Vafapour, Saeid (2003). Studying the relationship between changes in cash flow items and changes in stock return in firms enlisted in Tehran Stock Exchange. MA Dissertation, Tehran University. Casser, Gacinjchn 2005, External financing and firm Opreating Performance working Paper, University of California, Berkeley. Seyyednejhad-e-Fahim, Reza (2002). Studying the relationship between debt ratio and return on assets in firms enlisted in Tehran Stock Exchange. MA Dissertation, Tarbiat Modarress University. Moradzadeh & Nadalipour-e-Monfared (2009). The relationship between cash flows resulting from financing activities and stock return. Stock Exchange Organization Report, No. 769. Banaei-e-Zakliki, Mohammadli; Ahmadvand Jhila (2008). Studying the effect of ownership structure on performance of firms enlisted in Tehran Stock Exchange. Journal of Financial researches, No. 26 Mojtahedzadeh, Vidaa; Alavi-e-Tabari, Seyyed Hossein; Khodabakhshi, Najmeh (2009). The relationship between financing and operating performance in firms enlisted in Tehran Stock Exchange. Journal of Accounting Researches Namazi, Mohammad; Rostami, Nouraldin (2006). Studying the relationship between financial ratios and stock return rates of firms enlisted in Tehran Stock Exchange. Journal of accounting and auditing studies, No. 44.