Time series analysis

Time series analysis is a tool/technique used to predict future values - such as sales, earnings, or operating cash flows - based on past values of the same variable. The term persistence refers to the repeatability (or continuity) and durability of the financial statement variables over time. It is an estimation of whether the trend of the past financial performance will continue.

Dechow and Schrand (2004)

In a 2004 study, Dechow and Schrand examined the persistance of various financial statement variables over the period 1987 to 2002.

Performance = β0 + β1*Performancet 

Performance measures used:

• Sales

• Operating income

• Cash flows from operating activities

• Cash flows from financing activities

• Cash flows from investing activities