The Research On Financial Forewarning Of Company Based On Cash Flow

Cash is the basis for maintaining the daily operation of production activities and is thelifeblood of enterprise development. In the business process, financial risk management andcash flow control are complementary and mutually penetrative.The main purpose of the financial forewarning is forecasting enterprise financial crisis.In previous study, traditional financial indicators are used mostly in the financial forewarningmodeling analysis. Involved cash flow indicators, the financial forewarning research is stillimmature. Based on summarizing previous research, this paper analyzes the comparativeadvantages and limitations of traditional financial indicators and cash flow indicators. It’sfound that cash flow indicators are better than accounting profit targets in response forenterprise actual financial position.In the paper, it’s novel to research enterprise financial forewarning system in core of thecash flow. In particular, reflected on the select indicators, the paper focuses on selectingfinancial indicators in corporate cash flow generated from operating activities. In addition,cash flow indicators are superior in response for solvency, current capacity, quality ofearnings, development capacity and financial flexibility, compared with accounting profittargets. Especially, cash flow indicators cannot easily be manipulated by man-made factorsand can accurately reflect the cash position of the business daily business activities.In the empirical inspection part, it designs financial forewarning indicator system in theperspective of cash flow. Select the cash flow ratio, net assets of the cash flow ratio, netoperating cash ratio, operating cash flow growth, cash flow ratio as variables in the model.Use multivariate logistic regression analysis to establish the financial forewarning modelbased on cash flow. Overall accuracy rates about financial forewarning model are82.75%in2010,81.05%in2011,84.50%in2012.In contrast, overall accuracy rates about the traditionalfinancial forewarning model are69.0%in2010,77.6%in2011,75.9%in2012. The resultsshow that the financial forewarning model based on cash flow has more discrimination abilityand interpretation ability for enterprise financial crisis.