The Use of Cash Flow Statement and Accruals-Based Measures to Determine Corporate Failure: Evidence from Textile Sector of Pakistan

Sameer Anjum , Ammar ud din ,Dr Bilal Aziz

Abstract

This study examines the use of cash flow statements and accrualbased measurements to determine corporate failure in the Pakistan textile sector over the period 2008-2021. This study covers the ratio of cash flows from operations to current liabilities, total assets and net income, the ratio of cash flows from financing to interest expenses, the ratio of income from
operations to current liabilities, total assets and net income and Cash flow has been used as an independent variable while corporate failure is used as a dependent variable. The purpose of this study is to check the reliability of cash flow measures and accrual-based measures to determine corporate failure adopting 40 listed firms on PSX from 2008 to 2021 in which 20 failed firms who delist form PSX and 20 non failed firms form textile sector of Pakistan. The study used a sample of 40 firms listed on the Pakistan Stock Exchange. This study used a logistic regression model to measure the relationship between cash flow statements, acrobatic measurements and corporate failure. The experimental results shows that cash flow measures
are strong indicators and play important role in business success/failure in the case of both listed and delisted firms while accrual based have no distinguish results. So, it is concluded that cash flows are utmost important to determine business success and failure while accrual-based measure has no strong indicators for success and failure because the results are same in both contexts. The study suggests that investors, Pakistan Textile Sector Administration and also government send early warnings to concerned parties so they use the models and take necessary corrective measures can be taken and further concerns can be raised over cash flow statements.
Keywords: Cash Flow Statement, Accruals Based Measure, Cash Flow Management, Business Failures, Business Success, Financial Reporting.