Relevance of statement of cash flow in the measurement of corporate financial performance
Keywords:Use about five key words or phrases in alphabetical order, Separated by Semicolon.
The objective of this paper is to examine the relevance of statement of cash flow in the measurement of corporate financial performance.
The methodology is secondary source through library based research and the review of relevant and extant literature, after which conclusion and recommendations were preferred.
It is evident based on the review of literature that the statement of cash flows is yet to attain adequate relevance in the financial reporting environment due to some inherent problems such as lack of financial accounting literacy on the part of some non-accountant investors, the over-emphasis on the use of profit as a standard measure of performance by regulatory authorities, and limited attention given to the statement in the course of auditing financial statements. It is therefore recommended that the Financial Reporting Council of Nigeria (FRCN) and professional bodies should put stiffer penalties in place to reduce problem of material misstatement, so as to ensure that the cash flow figures as reported present the true and fair view. The basis of preparation of statement of cash flows should make relevant adjustment for inflation through the use of either current purchasing power approach or current cost accounting particularly for industrial organisations during the period of hyperinflation in an economy in order to increase its relevance.
 Adame, K., Koski, J., & McVay, S. (2019). Why are investors paying more attention to free cash flows? University of Washington.
 Adelegan, O.J. (2003). An empirical analysis of the relationship between cash flow and dividend charges in Nigeria. Journal of Research in Development and Management, 15, 35-49. https://doi.org/10.1111/1467-8268.00061.
 Amuzu, M. S. (2010). Cash flow ratio as a measure of performance of listed companies in emerging economies: The Ghana example. A dissertation submitted in fulfilment of the requirement for the Degree of Doctor of Philosophy, St. Clements University Turks and Caicos Islands.
 Bhandari, S. B. & Iyer, R. (2013).Predicting business failure using cash flow statement based measures. Managerial Finance, 39(7), 667-676. https://doi.org/10.1108/03074351311323455.
 Bhunia, A., Mukhuti, S. S., Roy, S. G., Harbour, D., Bengal, W., & Delhi, N. (2011). Financial performance analysis-A case study. Current Research Journal of Social Sciences, 3(3), 269 -275. https://doi.org/10.5296/jmr.v3i2.574.
 Body, T., & Cortese-Danile, T.M. (2000).Using the cash flow statement to improve credit analysis. Commercial Lending Review, 16(1), 55-59.
 Bragg, S. M. (2002). Business ratios and formulas: a comprehensive guide. New York.
 Broome, O.W. (2004).Statement of cash flows: Time for change! Financial Analysts Journal, 60(2), 16-22, https://doi.org/10.2469/faj.v60.n2.2605.
 Chenhall R. (2005). Integrative strategic performance measurement system, strategic alignment of manufacturing, learning and strategic outcomes: An exploratory study. Accounting, Organisation and Society, 30, 395-422. https://doi.org/10.1016/j.aos.2004.08.001.
 Chukwunwike, O.D., Ofoegbu, G.N., Okoroiwu, K.L., & Okafor, R.G. (2018).The potency of cash flow in predicting corporate financial performance. Account and Financial Management Journal, 3(6), 1591-1601. https://doi.org/10.31142/afmj/v3i6.06.
 Companies and Allied Matters Act (CAMA) 1990 Laws of the Federation of Nigeria, 1990
 Companies and Allied Matters Act (CAMA) 2004 Laws of the Federation of Nigeria, 2004
 Danos, P. & Imhoff, E. A. (1991). Introduction to Financial Accounting. Boston: Richard D. Irwin, Inc.
 David, F.R. (2005). Strategic Management: Concepts and Cases. Prentice Hall, Pearson Education International, 10th edition.
 Davis, O. (2016). Statement of cash flows: Issues in cash flow reporting in Estonia. Master Thesis, Tallinn University of Technology, School of Economics and Business Administration, Department of Accounting, Chair of Management Accounting
 Donleavy, G. (1994). Cash Flow Accounting: International Uses and Abuses. London: Routledge.
 Egginton, D. A. (1984).In defence of profit measurement: Some limitations of cash flow and value added as performance measures for external reporting. Accounting and Business Research, 14(54), 99-111. https://doi.org/10.1080/00014788.1984.9729197.
 Egginton, D. A. (1985).Cash flow, profit and performance measures for external reports: A rejoinder. Accounting and Business Research, 15(58), 109-112. https://doi.org/10.1080/00014788.1985.9729254.
 Eyisi A. S. & Okpe I.I. (2014). The impact of cash flow ratio on corporate performance. Research Journal of Finance and Accounting, 5(6), 149-158.
 Fabozzi., F. J. & Markowitz, H. M. (2002). The theory and practice of investment
 FASB. (1987). Financial Accounting Standards. Statement of Financial Accounting Standards No. 95 Statement of Cash Flows. . Norwalk: Financial Accounting Standards Board.
 Flood, M.J. (2015). GAAP 2015, Interpretation and Application of Generally Accepted Accounting Principles. Norwalk, Connecticut, USA: Wiley and Sons Ltd, pp. 83-101. https://doi.org/10.1002/9781119216698.
 Heikal, M., Khaddafi, M., & Ummah, A. (2014). Influence analysis of return on assets (ROA), return on equity (ROE), net profit margin (NPM), debt to equity ratio (DER), and current ratio (CR), against corporate profit growth in automotive in Indonesia stock exchange. International Journal of Academic Research in Business and Social Sciences, 4(12), 101â€“114. https://doi.org/10.6007/IJARBSS/v4-i12/1331.
 IAS (7). International Accounting Standards on Statement of Cash Flows.
 Jensen, M.C., & Meckling, W.H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360. https://doi.org/10.1016/0304-405X(76)90026-X.
 Jooste, L. (2006).Cash flow ratios as a yardstick for evaluating financial performance in African businesses. Managerial Finance, 32(7),569 -576. https://doi.org/10.1108/03074350610671566.
 Kabajeh, M. A. M., Alnuâ€™aimat, S. M. A. & Dahmash, F. N. (2012). The relationship between the ROA, ROE and ROI ratios with Jordanian insurance public companies market share prices. International Journal of Humanities and Social Science, 2(11), 115â€“120.
 Kaplan, R. S. (1983). Measuring manufacturing performance: A new challenge for managerial accounting research. The Accounting Review. https://doi.org/10.1007/978-1-4899-7138-8_14.
 Kaplan, R. S. & Norton. (1992). The balanced scorecard measures that drives performance. Harvard Business Review, 70 (1), 71-79.
 Kwok, H. (2002).The effect of cash flow statement format on lendersâ€™ decisions. The International Journal of Accounting, 37, 347-362. https://doi.org/10.1016/S0020-7063(02)00171-1.
 Lawson, G. H. (1985).The measurement of corporate financial performance on a cash flow basis: A reply to Mr. Egginton. Accounting and Business Research, 15(58), 99-108. https://doi.org/10.1080/00014788.1985.9729253.
 Lee, T. A. (1981).Reporting cash flows and net realisable values. Accounting and Business Research, 11(42), 163-170. https://doi.org/10.1080/00014788.1981.9729693.
 Lee, T. A. (1985).Cash flow accounting, profit and performance measurement: A response to a challenge. Accounting and Business Research, 15(58), 93-97. https://doi.org/10.1080/00014788.1985.9729252.
 Lee, T. A. (1990).Restricting the domain and potential of cash flow accounting. Accounting and Business Research, 20(80), 355-358. https://doi.org/10.1080/00014788.1990.9728894.
 Lee, J. E., Glasscock, R., & Park, M. S. (2017).Does the ability of operating cash flows to measure firm performance improve during periods of financial distress? Accounting Horizons, American Accounting Association, 31(1),23-35. https://doi.org/10.2308/acch-51594.
 Miranda-Lopez, J.E. & Nichols, L.M. (2012).The use of earnings and cash flows in investment decisions in the U.S. and Mexico: Experimental evidence. Journal of International Accounting, Auditing and Taxation, 21,198-208. https://doi.org/10.1016/j.intaccaudtax.2012.07.008.
 Nwaiwu, J. N. & Macgregor, T.C. (2018). 21st century cash flow accounting and financial performance of quoted companies in Nigeria. International Journal of Advanced Academic Research, 4(2), 25-38.
 Osirim, M. (2017).The relevance of the statement of cash flows in the decision making of business organisations: The experience of the banking industry in Nigeria. Business, Management and Economics Research, 3(9), 151-158.
 Ross, S. WesterField, R., & Jordan, B. (2007). Fundamental of corporate finance. New York: Pearson â€“ Patience.
 Ryu, K. & Jang, S. (2004).Performance measurement through cash flow ratios and traditional ratios: A comparison of commercial and casino hotel companies. The Journal of Hospitality Financial Management, 12(1), 15-25, https://doi.org/10.1080/10913211.2004.10653783.
 Savoie, L. (1965). The accounting principles board: What it is, how it works and what its role in business is. Financial Analysts Journal, 21, 53-57. https://doi.org/10.2469/faj.v21.n3.53.
 Sharma, D. S. & Iselin, E. R. (2003).The decision usefulness of reported cash flow and accrual information in a behavioural field experiment. Accounting and Business Research, 33(2), 125-135. https://doi.org/10.1080/00014788.2003.9729639.
 Staubus, G. J. (1989).Cash flow accounting and liquidity: Cash flow potential and wealth. Accounting and Business Research, 19(74), 161-169. https://doi.org/10.1080/00014788.1989.9728846.
 Street, D. L. & Stanga, K. G. (1989).The relevance of a segment cash flow statement in lending decisions: An empirical study. Accounting and Business Research, 19(76), 353-361. https://doi.org/10.1080/00014788.1989.9728864.
 Ubesie, M. C., Chitor I. L., & Ejembi, E. A. (2016).Effect of cash flow statement on performance of selected food beverage companies in Nigeria. IDOSR Journal of Current Issues in Social Sciences, 2(1), 47-54.
 Uremadu, S.O (2004). Financial management: Concepts, analysis and applications. Enugu, precision publisher limited.
 Zeff, S. A. & Keller, T. F. (1985). Financial Accounting Theory Issues and Controversies. New York: McGraw-Hill Inc.