Final answer:
Past cash flows are usually a better predictor of future cash flow to the firm compared to past income.
Step-by-step explanation:
The better predictor of future cash flow to the firm is past cash flows.
While past income may provide some indication of a firm's financial performance, it does not necessarily reflect the firm's ability to generate consistent cash flow in the future. Past cash flows, on the other hand, directly measure the amount of money a firm has generated or received over a specific period of time, which can provide insight into its ability to generate future cash flow. For example, if a firm consistently generates positive cash flows over several years, it suggests that the firm has a reliable source of income and can continue to generate future cash flow.
Additionally, past cash flows also take into account factors such as reinvestments, expenses, and depreciation, which can impact a firm's profitability and ability to generate cash flow.