The Effect of Using Cash Flow Indicators on the Possibility of Predicting Future Financial Distress : An Applied Study on a Sample of Industrial Companies Listed on the Iraq Stock Exchange

• Post by: Muthanna mjdes
• October 26, 2022
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Ali Abdul-Hussain Hani Al-Zamili ^*a        &     Muhsin jassim muhammed ^b

University of Al-Qadisiyah / College of Administration and Economics.

Abstract                                

This research aims to conclude  a set of indicators derived from the list of cash flows that have a weight that can be used to predict the faltering of industrial companies listed on the Iraq Stock Exchange early in order to alert departments in a timely manner to take appropriate corrective measures. In order  to achieve this, (16) indicators derived from the statement of cash flows are used for a sample of (8) companies, half of which are distressed, and the other half are non-distressed for the period (2016-2018). The analysis is performed using the method of multiple discriminatory analysis. In order to get the best set of cash flow indicators through this, a predictive model can be built that helps to distinguish the distressed and non-performing companies. (5) indicators have been reached through which a predictive model has been built through that the objectives of the research can be achieved, which are as follows:

                                    Z = -1.873×1-0.416×2 + 2.137×3 + 0.198×4 + 0.307×6

The accuracy of the model is  also tested in predicting the default of industrial companies listed on the Iraq Stock Exchange, a year before the distress, and the degree of accuracy was 87.5%. However, in the second and third years preceding the distress, the accuracy of the model was 62.5%. The study recommends the necessity of the Iraqi industrial companies adopting the predictive model and making use of its outputs for the purpose of early prediction of financial failure to take appropriate corrective measures.

DOI:10.52113/6/2021-11-3/317-333