Cash Flow Statement as an Evidence for Financial Distress

摘要

In this study, the effect of cash flow components on financial distress score is examined for 124 companies selected from Istanbul Stock Exchange (ISE). It is further analyzed whether cash flow components have an explanatory effect on bankruptcy risk and financial health of companies. Four separate models are constituted and Linear Regression Model is used to evaluate company age, company size, cash flow from operations (CFO), cash flow from investing (CFI) and cash flow from financing (CFF) activities as a function of financial distress score of companies. The results show that there is a negative relationship between CFO, company size and financial distress score of companies. On the contrary, CFF is observed to be positively related with the financial distress score. Meanwhile, it is further observed that the standardized coefficient of CFI is statistically insignificant and hence it does not provide any evidence for the financial weakness or bankruptcy risk of companies.