Abstract
A method for determining past and present cash flows and internal rates of returns (IRR) that uses the data already available in financial statements is presented. The work of Ijiri (1980), who developed the idea of cash recovery rate (CRR) to address the problem of finding suitable surrogates for IRR and cash flows, is modified and extended. Ijiri's research covering 20 firms during 1972-1978 is duplicated using COMPUSTAT tape data on 18 of the firms, and the same or close amounts for the CRRs are obtained. Of the 126 observations published by Ijiri, the present research matches 114. To test for a larger sample of firms representing the US economy, the CRRs for 1974-1983 for all 1,778 firms in the COMPUSTAT tapes with data for each of the 10 years are computed. Also, the average and standard deviations of the 10 CRRs for each firm are calculated, and the stability of the CRRs is tested. The firms are classified as stable (359) or unstable (1,419) according to their standard deviation. This sample revealed that large asset size and project life longer than 12 years are related to stability and low standard deviation of CRRs. A direct relationship between the CRR and the IRR cannot be assumed at all times.