We directly test our contracting arguments' and simple model's that earnings by itself is a better forecast of future operating cash flows than current operating cash flows by itself. The test uses earnings and cash flows individually as forecasts of one-to three-yearahead operating cash flows. Since this test does not require estimation of any parameters, all forecasts are out of sample. We also test the proposition that the forecasting superiority of current earnings relative to current operating cash flows increases with the operating cash cycle, 8. To compare predicted and actual correlations and investigate the cross-sectional relation between the two, predicted numerical.
