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1 CASH FLOW RATIO AS A MEASURE OF PERFORMANCE OF LISTED COMPANIES IN EMERGING ECONOMIES: THE GHANA EXAMPLE By MAXWELL SAMUEL AMUZU MBA, CA (GH), MPMA, CMC, Fdip, MWIAMC, CIPM, ACIA, FIPFM Matriculation Certificate: 8965 A dissertation submitted in fulfilment of the requirement for the Degree of Doctor of Philosophy St. Clements University Turks and Caicos Islands March, 2010 Supervisor: Dr. Yasmin Yusof
2 DECLARATIONI certify that this thesis does not incorporate without acknowledgement any material previously submitted for a degree or diploma in any University; and that to the best of my knowledge and belief it does not contain any material previously published or written by another person where due reference is not made in the text.
3 DEDICATIONThis research is dedicated to the Almighty God for his guidance and protection. In addition, it is dedicated to my immediate family, Netoline, Mildred, Maxwell Jnr. and Kelvin.
4 ACKNOWLEDGEMENTI wish to record my appreciation for the guidance, support and comments to my supervisor, Dr. Yasmin Yusof for her effective supervision. Furthermore, I am indebted to the various authors whose works provide the relevant inputs for this research. Finally, to God be the Glory. Maxwell Samuel Amuzu St. Clements University 2010
5 ABSTRACTThis document discusses a research project regarding the use of cash flow analysis in determining enterprise competitiveness. Cash flow analysis is thought to be more effective in determining enterprise effectiveness and competitiveness in the market because it is a more dynamic examination of actual return on assets and equity. Additionally, this unique use of cash flow analysis is applied to the concept of emerging markets and the proposal that cash flow analysis is a better measure of performance and competitiveness for firms that are competing in emerging markets. This research project relies on a qualitative methodology and employs the action research methodology to address the problem statement and rationale.
6 TABLE OF CONTENTSDeclaration 2 Dedication 3 Acknowledgement 4 Abstract 5 Table of Contents 6 Chapter I: Introduction 13 1.1.1 Importance of cash flow ratios 16 1.1.2 Use of cash flow ratios as a predictor to failing business 20 1.1.3 Relative performance evaluation using ratios 24 1.1.4 Accounting for and reporting cash flows 25 1.1.5 Financial statements information and the role of cash flow statement 26 1.1.6 Cash flow classification 31 1.1.7 Sustainable cash flows 36 1.1.8 Cash flow and equity investors 38 1.1.9 Cash flow and lenders 39 1.1.10 Use of cash flow ratios in solvency testing 40 1.1.11 Drawbacks of a cash flow analysis 40 1.1.12 Cash flow data ratios 41 1.2 Conceptual framework 59 1.3 Objective of the study 61 1.4 Working hypothesis 63 1.5 Research scope and methodology 63
7 1.6 Preview of subsequent chapters 65 Chapter II: Literature Review 66 2.1 Introduction 66 2.2 Importance of cash flows in predicting the performance of a firm 69 2.3 Assessment of the application of operating cash flows by creditors 71 2.4 The functions of cash flow as a result of operations 74