Importance of Cash Flows Ratios to Predict Financial Failure of Libyan Public Industrial Firms

Hits: 2112

Importance of Cash Flows Ratios to Predict Financial Failure of Libyan Public Industrial Firms

Prof. Khamoussi Ahmad  Halioui

Department of Accounting- College of Economics and administrative Science

Al Imam Mohammad Ibn Saud Islamic University - (KSA)

Ahmed Elsharif Ahmed

Department of Accounting- College of Economic

University of Sirte, Libya

This email address is being protected from spambots. You need JavaScript enabled to view it.

Abstract:

This study aims at identifying the importance of cash flows ratios to predict financial failure of Libyan public industrial firms . The Multiple Discriminant Analysis is used to identify the best set of cash flow ratios that can discriminate between the failed and non-failed firms . Eleven cash flow ratios were calculated for a sample consisted of ( 16 ) non failed firms and ( 7 ) failed firms, and used in the developed model. The ( 23 ) firms were pair-matched on the basis of industry and asset size for the period between the years ( 1998 – 2006 ) .

The findings show that 3 out of 11 cash flow ratios are significant to predict the failure of  Libyan public industrial firms : Cash Coverage Ratio , Net Cash Flow from Operating Activities to Capital Expenditures , and Net Cash Flow from Operating Activities to Revenues. The proposed model  enables the re-rating of companies in the sample analysis within the two groups of failed and non-failed companies in the second year before the failure with the accuracy of 73.9%.

Keywords: Financial Failure, Failure Prediction,  Cash Flows Ratios, Multiple Discriminant Analysis .

download