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Cash Flow in Bankruptcy Prediction
Michael J. Gombola, Mark E. Haskins, J. Edward Ketz and David D. Williams
Vol. 16, No. 4 (Winter, 1987), pp. 55-65
Stable URL: http://www.jstor.org/stable/3666109
Page Count: 11
You can always find the topics here!Topics: Bankruptcy, Cash flow, Debt, Modeling, Financial accounting, Working capital, Factor analysis, Discriminants, Financial ratios, Cash
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Most previous studies of the influence of cash flow in bankruptcy prediction may be flawed because (1) they do not adjust for all accruals in deriving an estimate of cash flow from operations (CFFO), and (2) they do not isolate discrete time periods in which a cash flow effect may or may not be present. We isolate a period of time (1973-1981) in which a CFFO effect is possible. Even after this methodological improvement, it is found that CFFO is not a significant predictor of corporate bankruptcy.
Financial Management © 1987 Financial Management Association International