Evaluation of Cash-flow Information Relevance in Financial Failure Forecasting: A case study of some Algerian firms during the period (2003 – 2010)

Abstract

The objective of this study is to prove cash flow information ability in financial failure forecasting. To accomplish this aim through a forecasting model, we applied the discriminant analysis method for some failed and non-failed Algerian companies during the period (2003 – 2010), and sixteen financial ratios were calculated for the same purpose, the study results are: - Only six ratios can discriminate between failed and non-failed companies , these ratios are: Debts to total assets, Operating cash flow to short-term debts, Long-term debts to current assets, Working capital to current assets, Operating cash flow to total assets, and Debts to operating cash flow. - Among discriminate ratios, three are cash flow ratios, which means that cash flow information has a great ability to financial failure forecasting