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A Note on Cash Flow and Classification Patterns of Financial Ratios.

Michael J. Gombola; J. Edward Ketz
The Accounting Review 1983 58(1), 105-114
Classification schemes for financial ratios serve to aid understanding of empirical similarity among the ratios and to aid in the selection of critical financial variables for empirical research. Previous researchers, who defined cash flow as net income plus depreciation, found cash flow ratios highly associated with return ratios. In this study, cash flow is computed by adjusting net income for all accruals and deferrals. This more appropriate definition leads to classification schemes in which the cash flow ratios form a factor separate and distinct from the factor of return ratios.

An Alternative Approach to Depreciation Switches.

Carl J. Messere; Gilroy J. Zuckerman
The Accounting Review 1981 56(3), 642-652
This paper provides an algebraic alternative to the usual method of determining the optimal time to switch from a declining-balance method of depreciation to the straight-line method of depreciation. The decision model covers situations both with and without: (1) salvage values, (2) bonus depreciation, (3) the salvage value reduction of IRC sections 167(f), and (4) proportionate first-year depreciation. This alternative approach demonstrates that the only relevant variables to the switchover decision are the asset's estimated life, salvage value, and the allowable declining-balance percentage.