ABSTRACT
This chapter is based on work at the Manchester Business School during 1979 for the Cash Flow Accounting Sub-Committee of The Association of Certified Accountants. The historic cost accounting performance of quoted companies in the UK manufacturing sector during the period 1954 to 1976 can be juxtaposed with their cash flow performance. In formulating a model that is intended to relate a company's stock market performance to its cash flow performance, at least two problems are encountered which do not appear to arise in the analysis of aggregate data. The enormous deviations between the historic cost and cash flow magnitudes prompts one to question whether, like lenders, the British Treasury and company directorates, the market has also been fooled by the historic cost accounting model. The ultimate aim was the formulation of a multiple regression model which, it was hoped, would explain the serial behaviour of a company's equity market value in terms of its equity cash performance.
