Relation in net cash flow variations from each rank of cashflow statement with P/E

Abstract

This paper investigates the relation between net cash flow from each part of cash flow statement and price to earning ratio (P/E). Cash flow statement is one of the assentional statement that shows companies ability in order to make cash, pay liabilities and financing. This information is important to determine companies' value; In addition they affect on investors' judgment and decisions. So in this paper we want to know whether net cash flow from each part of cash flow statement can affect P/E ratio, which is one of the important ratios in determining companies value? The sample in the research is companies from capital market which have more than 3years transaction and are categorized in 5 industries like: Automotive, Medicine product, Drinkable and Nutrients product, Cement and Petrochemical product from 1381 to1390. So 95 companies select for research. In order to test hypothesis we apply Correlation Coefficient and Regression model. Results show that there is meaningful negative relation between net cash flow from operation activities (NOA) and P/E, meaningful positive relation between net cash flow from Investments return activities (ROI) and P/E, meaningful negative relation between net cash flow from Investment activities (NOI) and P/E; but there is no relation between incoming tax (NOT) with P/E and net cash flow from financing activities (NOF) with P/E.

Keywords

• Net Operating Activities
• Net Investing Activities
• Net Financing Activities
• return on investment
• Price to Earning Ratio