This research work critically examines the impact of
cash flow statement in an organization. The broad objective of this study is to
examine the relationship between
operating cash flows and corporate performance and also to examine the
correlation between investing cash flows and corporate performance. The primary source of data collection was used in
the study and data for the study were collected through the use of
questionnaire. 60 questions were administered and fifty eight (58) were returned.
The responses were then analyzed using the simple percentage method and the
chi-square denote by a Greek symbol (X2) to test the hypothesis. The
findings showed that there is a significant relationship between cash flow
statement and corporate investment and that cashflow statement
impact on organization performance.
However, it was recommended that in improving their performance and cash flow,
corporation should seek to improve their investment policy since increase
investment lead to more cash flows for the organization.
TABLE OF CONTENTS
Title Page i
Table of Contents vi
One: Introduction 1
1.1 Background to the Study 1
1.2 Statement of Problems 4
1.3 Research Questions 6
1.4 Objectives of the Study 6
1.5 Statement of Hypothesis 7
1.6 Significance of the Study 8
1.7 Scope of the Study 9
1.8 Limitation of the Study 10
1.9 Definition of Terms 10
Chapter Two: Review of Related Literature 11
2.1 Introduction 11
Flow Statements 20
Flow Statement vs Cash Flow Statement 25
of Cash Flow Information 29
2.5 Presentation of Cash Flow Statement Cash and Cash Equivalents 31
of cash flow statements 33
confusing issues in identifying activities For Cash flow 38
of the cash Flow Statement Control Function in Financial Reporting 42
Importance of Effective Cash Flow Management on Corporation 46
Chapter Three: Research
Method and Design 48
3.1 Introduction 48
3.2 Research Design 48
3.3 Description of Population of the Study 48
3.4 Sample Size 48
3.5 Sampling Techniques 49
3.6 Sources of Data Collection 49
3.7 Method of Data Presentation 49
3.8 Method of Data Analysis 50
Chapter Four: Data Presentation,
Analysis and Interpretation 51
Chapter Five: Summary of Findings,
Conclusion and Recommendations 61
5.1 Introduction 61
of Findings 62
Appendices I 68
Appendix II 69
Appendix III 71
Background to the Study
Cash flow of a company is a crucial factor that
enhances its operations. According to Efobi (2008), Due to the relevance of
cash flows in the company’s operations and performance, corporate organizations
need to develop a suitable cash flow mix and apply it in order to maximize
shareholders values. Uremadu (2004) sees cash flows of an organization as those
pool of funds that the company commits to its fixed assets, inventories,
account receivables and marketable securities” that lead to corporate profit.
The ability of the company to effectively choose adequate source of funds to finance
its operations will differentiate strong cash flow governance and poorly managed
cash flows (Efobi, 2008). For the cash flows to be well structured and
effectively utilized, a business firm must be able to devise various ways for
selecting the best components of its cash flows which would be used in the
company’s operation to raise its productivity or achieve performance. This
process should be based on the criteria well drawn up by the finance manager
after making a careful financial planning and control for the company (Uremadu,
Cash flow is an index of the money that is actually
received by or paid out by a firm for certain time period (Albrecht, 2003).
This index is not inclusive of non-cash accounting charges such as
depreciation. Cash represents the firm’s vascular system, if it dwindles, the
business will not survive. The fact that a firm is profitable does not mean
that it is also solvent. The profit is not cash. The solvency, flexibility and
the financial performance of the firm are set on the firm’s ability to generate
positive cash flows from the operating, investing and financing activities
(Turcas, 2011). Cash flows represent all inputs and outputs liquidities and
cash equivalents. Liquidities represent cash on hand and demand deposits. Cash
equivalents are short-term investments with a liquidity degree that can be
easily converted into cash with an insignificant risk of value change.
According to Adelegan (2003), cash flows are more
direct measure of liquidity and a contributing factor in corporate performance.
Cash flow information assists its financial statement users in obtaining the
relevant information concerning the use of resources of virtually the entire
financial resources over a given time period (Ross, 2007). Financial statements
translate the financial activity of the enterprise into a more or less objective
set of numbers, which provide valuable information about the firm’s performance
and about its possible problems and its potential in the future (Turcas, 2011).
The importance of cash flows cannot be overemphasized mainly because the users
of accounting information are particularly interested in the cash of the
company that is published) in its financial statements (Narkabtee, 2000).
According to Bodie (2004), internally, managers need to know the current
financial position of the firm (performance and problem), continuing with
problems and control functions. According to Fabozzi and Markomits (2006),
suppliers are interested in the firm’s liquidity because their rights are
generally on a short term and in this case the company’s ability to pay is best
reflected by the liquidity indicators. According to Bragg (2002), investors in
bounds, who ordinarily lend the firm on medium or long term for remuneration,
are rather interested in the company’s ability to generate cash flow for medium
and long-term coverage of debt service.
Statement of Problem
According to Pitman (2010), cash flow does not
always coincides with cash outflows. Thus, in some periods, cash will flow in
than out and at other times, cashflows out than in. if receipts and payments
period could be matched perfectly and forecast with certainty than a firm need
no cash balance.
Pitman (2010) went further I say that shortage of
cash curtail the operations of the firm which usually manifest inability of the
organization to pay bills when due and the dissipation of assets. Persistence
of cash shortage can lead to financial insolvency which may subsequently lead
to litigation of the organization. If there is too much cash, it is not
invested, then the firm is paying directly or indirectly for money that is not
using. The organization losses to earnings, interests and run the risks of
keeping the liquid fund (cash). The problem that faces management is how to
maintain and control optimum cash balances despite the difficulties in
Pitman (2010) also stated that the importance of
cash as an asset of a firm cannot be over emphasized with out cash, that is,
where is short is supply, the normal flows of operation of the corporation
flows are directly productive, it is sterile. It neither produces goods for
sale or induces customers to buy as if the case of other assets, fixed assets,
inventories and account receivable.
In current practice, including the ambiguity of
terms such as funds, lack of comparability arising from diversity in the focus
of the statement (cash, cash and short term investment, quick assets, or
working capital) and resulting differences in definition of funds flows from
1.3 Research Questions
research work is meant to proffer solutions to the following research
1. What is
the relationship between operating cash flows and corporate performance?
2. What is the correlation
between investing cash flows and corporate performance?
3. What is the relationship between financing cash flows and
1.4 Objectives of the Study
The main objective of this study is to appraise the
usefulness of cash flow statement in the management of corporate organization.
It is also aim at familiarizing stakeholders with
the sources of cash flows and how to assess the company’s performance on vital
criteria of liquidity and financial health.
This study basically centres on:
examine the relationship between operating cash flows and corporate
2. To examine the
correlation between investing cash flows and corporate performance.
3. To examine the relationship between financing cash
flows and corporate performance.
1.5 The Statement of Hypotheses
following hypothesis will be tested.
There is no impact of
cash flow statement on corporate organization.
There is an impact of
cash flow statement on corporate organization.
Ho: There is no significant relationship between
cash flow and corporate investment.
HI: There is a significant relationship between
cash flow and corporate investments.
is no significant relationship between cash flows and liquidity of a company’s
is significant relationship between cash flows and liquidity of a company’s
1.6 Significance of the Study
The impact of the study includes:
Creditors and other sophisticated
lenders will find it useful as the cash flow reveals the company’s ability to
pay its debt.
Potential/actual investors will find it
useful in determining the company’s ability to pay its customary dividends.
It will help management of corporate
bodies to determine whether or not the company should undertake borrowing to
According to Pandey (2005), the statement
prepared to analyze the cash flow is an important tool of short term financial
planning. In the long run, the firm is interested in working capital as this
will ultimately change into cash. But to make payments in the immediate future,
the firm needs cash. Cash is needed to pay maturing debts interests, dividends
and various expenses in the near future”.
Again according to Garrison and Noreen (2007)
“there is very good reason to focus on cash-without sufficient cash at the
right time, a company may miss golden opportunities or may even fall into
Hence, it helps management to carry out
thorough assessment of the performance and prospect of the business.
1.7 Scope of the Study
This study focuses on the information
relating to the movement of financial resources within and out of the company
and its importance to managers in understanding the outcome of their decisions,
actions and payments derived from each activity collectively illustrating the
difference between the beginning and ending cash flow on their corporate
The published financial statement of Eco
Bank Plc. will be used.
of the Study
The study is hampered by the following
Financial Constraint: The high
cost of materials and transportation constitutes a serious hindrance to early
completion of this study.
Time Factor: There is equally
limited time to be able to carry out a very detailed study.
1.9 Definition of Terms
Flow: The movement of
cash into and out of a business Oxford Dictionary of Accounting).
Equivalents: Highly liquid investments that are
capable of being converted into known amounts of cash without notice and that
were within three months of maturity when acquired.