The Prediction of Future Profitability Using Life Cycle Theory Based on Cash Flow Pattern

Abstract

This paper aims to predict the future profitability of a firm using the life cycle theory based on the cash flow statement. In this study, changes in return on net operating assets were considered as a dependent variable. The profitability factors were independent variables and the risk factors were used as a control variable in order to examine the prediction of the future profitability. The statistical samples were classified into the stages of introduction, growth, maturity, shake-out, and decline by using cash flow patterns. The results of 1,123 (firms-years) over the time period of 2002 and 2011 showed that the return of the net operating assets and their variations and changes in the asset turnover at different stages of the life cycle have an impact on the future profitability of the firms.