The Potency of Cash Flow in Predicting Corporate Performance
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‘Cash flow potency in predicting corporate performance’ is simply studying the inflow and outflow of cash and cash equivalents with the mind of projecting into the future of entities and taking desirable decision where necessary. The study was influenced by the dire need for a basis for reviewing corporate entities for possible investment or divestment. Amidst other methods of examining potential corporate entities for investment, the cash flow was put on the spot. The objective of the study is to ascertain the impact of cash flows (CF) on the reported profits (RP) of corporate entities. The study examined the impact of cash flow statements’ activities (operating, investing and financing) and reported profit (performance); making prediction of the future performance using the equation derived. The quasi-experimental research design was adopted for this study, using a panel data from the annual reports of Banks quoted on the Nigerian Stock Exchange for a period of ten (10) years (2007 -2016). In analyzing the data from this study, panel multiple regression technique was applied on STATA econometrics software. The outcome revealed a positive impact of cash flows (CF) on the reported profits (RP), albeit the impact was insignificant. Further to it, the respective variable (CFFOA, CFFIA, and CFFA) of cash flow had a positive effect albeit within the insignificant region of the rating. Also, all the coefficients of the element of cash flow were negative, with cash flow from operating activities having the best proximity to predict profit; though the prediction might be insignificant and therefore not necessarily very helpful in forecasting corporate performance. The study outcome necessitated the recommendation that cash flow statement should not be over-dependent upon in reviewing of corporate efforts.
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