FINANCIAL REPORTING BY FOUR UK CLEARING BANKS: A CASH FLOW EXIT PRICE (caFE) APPROACH.

This article discusses various issues related to financial reporting by four main clearing banks of Great Britain. These banks are: Barclays Bank PLC, Lloyds Bank PLC, Midland Bank PLC and National Westminster Bank PLC. The article author converts the published accruals based accounting information of the banks to a cash flow exit price based format, while keeping two objectives in his mind. The first one is to see whether a combined system can provide insights into the operations of the banks during the 1980s, a period of considerable change. the banks were subject in 1981 to a levy by central government on "windfall profits" and by the end of the decade, amid fears of a recession, the banks were beginning to provide substantially not only against Less Developed Countries debt but also against domestic debt, particularly debt secured on property. The second objective is to compare the information content of a conventional profit measure with adjusted accounting measures based on cash flows and exit prices. A significant and negative relationship was found between contemporaneous share returns and cash flow from operations, also between contemporaneous share returns and cash flow from operations plus adjustment for exit price changes.