Discuss the Correlations That Have Been Found Between Net Income,net

Essay

Discuss the correlations that have been found between net income,net income plus or minus Type 1 adjustments (i.e.,adjustments to net income for revenues,expenses,gains,and losses that are recognized in income and are associated with changes in noncurrent assets,noncurrent liabilities,and shareholders' equity,but do not affect cash by the same amounts for the period),and cash flow from operations.
A. Daley, "Evidence on the Relationships Between Earnings and Various Measures of Cash Flow," Accounting Review (October, 1986)revealed (1)a high correlation between net income and net income plus or minus Type 1 adjustments, and (2)a low correlation between net income and cash flow from operations, and (3)a low correlation between cash flow from operations and net income plus or minus Type 1 adjustments over time