Financial distress prediction through cash flow ratios analysis

The purpose of this study to examine the relationship of cash flow ratios in predicting financial distress companies, with industrial and consumer product companies in Bursa Malaysia as the sample. The study on financial distress is critical as it can lead to bankruptcy, which may adversely affect t...

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Bibliographic Details
Published in:International Journal of Financial Research
Main Author: Kamaluddin A.; Ishak N.; Mohammed N.F.
Format: Article
Language:English
Published: Sciedu Press 2019
Online Access:https://www.scopus.com/inward/record.uri?eid=2-s2.0-85065998633&doi=10.5430%2fijfr.v10n3p63&partnerID=40&md5=4c5620568898dedab78891c096d62da6
id 2-s2.0-85065998633
spelling 2-s2.0-85065998633
Kamaluddin A.; Ishak N.; Mohammed N.F.
Financial distress prediction through cash flow ratios analysis
2019
International Journal of Financial Research
10
3
10.5430/ijfr.v10n3p63
https://www.scopus.com/inward/record.uri?eid=2-s2.0-85065998633&doi=10.5430%2fijfr.v10n3p63&partnerID=40&md5=4c5620568898dedab78891c096d62da6
The purpose of this study to examine the relationship of cash flow ratios in predicting financial distress companies, with industrial and consumer product companies in Bursa Malaysia as the sample. The study on financial distress is critical as it can lead to bankruptcy, which may adversely affect the economy of the country. Therefore it is worth exploring any indicators that can identify the possibility of financial distress in the company. The tools enable to address the potential problems that can mitigate from distressed financial position. Most prior studies in Malaysia focus on traditional financial ratios, while this study exploits the strength of cash flow ratios. The liquidity ratio, solvency ratio, efficiency ratio and profitability ratio utilized in this study are derived from the statement of cash flows. The Altman Z-score is used to measure the level of the financial distress. The findings show mixed relationships between solvency ratio and financial distress and a negative significant relationship between profitability ratio and financial distress, whilst efficiency ratio has no relationship with the financial distress. These results suggest that cash flow ratios are reliable tools to predict financial distress for Malaysian context. The study is useful in giving insights to the stakeholders in their decision making. © Sciedu Press.
Sciedu Press
19234023
English
Article
All Open Access; Gold Open Access
author Kamaluddin A.; Ishak N.; Mohammed N.F.
spellingShingle Kamaluddin A.; Ishak N.; Mohammed N.F.
Financial distress prediction through cash flow ratios analysis
author_facet Kamaluddin A.; Ishak N.; Mohammed N.F.
author_sort Kamaluddin A.; Ishak N.; Mohammed N.F.
title Financial distress prediction through cash flow ratios analysis
title_short Financial distress prediction through cash flow ratios analysis
title_full Financial distress prediction through cash flow ratios analysis
title_fullStr Financial distress prediction through cash flow ratios analysis
title_full_unstemmed Financial distress prediction through cash flow ratios analysis
title_sort Financial distress prediction through cash flow ratios analysis
publishDate 2019
container_title International Journal of Financial Research
container_volume 10
container_issue 3
doi_str_mv 10.5430/ijfr.v10n3p63
url https://www.scopus.com/inward/record.uri?eid=2-s2.0-85065998633&doi=10.5430%2fijfr.v10n3p63&partnerID=40&md5=4c5620568898dedab78891c096d62da6
description The purpose of this study to examine the relationship of cash flow ratios in predicting financial distress companies, with industrial and consumer product companies in Bursa Malaysia as the sample. The study on financial distress is critical as it can lead to bankruptcy, which may adversely affect the economy of the country. Therefore it is worth exploring any indicators that can identify the possibility of financial distress in the company. The tools enable to address the potential problems that can mitigate from distressed financial position. Most prior studies in Malaysia focus on traditional financial ratios, while this study exploits the strength of cash flow ratios. The liquidity ratio, solvency ratio, efficiency ratio and profitability ratio utilized in this study are derived from the statement of cash flows. The Altman Z-score is used to measure the level of the financial distress. The findings show mixed relationships between solvency ratio and financial distress and a negative significant relationship between profitability ratio and financial distress, whilst efficiency ratio has no relationship with the financial distress. These results suggest that cash flow ratios are reliable tools to predict financial distress for Malaysian context. The study is useful in giving insights to the stakeholders in their decision making. © Sciedu Press.
publisher Sciedu Press
issn 19234023
language English
format Article
accesstype All Open Access; Gold Open Access
record_format scopus
collection Scopus
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