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This study hypothesizes that one role of accounting accruals is to provide a measure of short-term performance that more closely reflects expected cash slows than do realized cash flows. The results are consistent with this prediction. Over short measurement intervals earnings are more strongly associated with stock returns than are cash flow from operations and net cash flow. The ability of cash flow from operations and net cash flow to measure firm performance improves relative to earnings as the measurement interval is lengthened. Earnings have a higher association with stock returns than cash flow measures in firms experiencing large changes in their working capital requirements and aggregate accruals are large in absolute value. In addition, this study predicts that the length of the operating cycle is an underlying determinant of the variability of working capital and hence cross-sectional variation in cash flow from operations`s association with stock returns. The empirical results imply that the length of the operating cycle is a determinant of the variability of working capital. But earnings do not better reflects firm performance than cash flow from operations for firms in industries with long operating cycles.