The Impact of Cash Flow Ratio on Coparate Performance

Abstract

Performance appraisal based on accrued financial statement which had led to poor decision making resulting to corporate failure and rendering of investors helpless had led to the need for this study. In view of the above, this study ascertains the applications of cash flow ratio as a better tool for assessing corporate performance. In this study, performances were measured using liquidity ratio and asset management ratio. In carrying out this study, liquidity ratios and asset management ratios of organization were computed based on accrued and cash basis accounting. Results obtained showed that liquidity ratios computed on accrued basis showed good liquidity that company will be able to meet its financial obligation very well and effective asset management; while liquidity ratios computed on cash basis showed negative liquidity position/inefficient asset management which means the organization studied may not be able to meet up its financial obligation. Thus, this may lead to corporate failure, if proper course of action is not taken by management. The implication of the above results showed that accrued financial ratios maybe misleading in making investment decision and appraising performances, thus the cash basis ratio maybe preferred as a better tool for assessing corporate performance since this gives a better insight on viability and liquidity position of the coporate organization and serves as a good tool for predicting corporate failure.

Keywords: cash flow ratio, Corporate performance, accrued ratios, CFFO