Predicting financial failure using criteria based on the cash flow statement

Masters in Accounting (M.A)

Abstract

The explosive growth of the world's financial markets has created competition between investment institutions and in order to achieve better investment results, investment agencies must make predictions about their decisions, including the most important issue in financial management. The industry and financial performance of the company is aimed at discovering the strengths and weaknesses of past activities and using them to make decisions about future activities. Therefore, all stakeholders are always very careful about the methods of predicting the company's financial bankruptcy. One of these methods is the use of bankruptcy prediction models.

In this research, the bankruptcy prediction of companies admitted to the Tehran Stock Exchange during the years 1389 to 1391 was investigated for three years using the cash flow statement.

Bankruptcy prediction models are one of the techniques and tools for predicting the state of companies that estimate the probability of bankruptcy by combining a group of financial ratios.

In this research, we try to use the accounting information in the financial statements and the information in the cash flow statement to predict the probability of bankruptcy of companies in financial crisis using financial variables and the variables and ratios that can determine the bankruptcy status of companies. 1. Introduction: Financial statements are the main product of financial reporting and the main means of transferring accounting information to people outside the organization. The cash flow statement is designed to reflect the impact of operational activities, investment, and financing on the cash account during a financial period. From the point of view of financial statement analysis, the cash flow statement is very important to complete the analysis of ratios.

The old and traditional methods of evaluating customers are mostly subjective and rely on the perspective of the person responsible for paying the loan, which indicates the judgmental nature of the credit system. In order to achieve the model of bankruptcy prediction and credit risk management, we need a little information. The motivation of the researcher is to accurately identify the effective factors to make this prediction so that credit decisions can be made more accurately and fairly using the customers' credit and report the most reliable and least risky among the applicants for the facilities, so that ultimately it will reduce the outstanding claims of the banks, which is currently one of the problems of the banking system and the mental concerns of most officials.

Prediction Bankruptcy has become one of the most important research topics after Beaver Waltman applied the methodology of financial ratios in bankruptcy prediction, because the global economy has been experiencing severe challenges during the past decades, and now the global economy is in a severe crisis. The majority of companies, big and small, are facing bankruptcy filing problems, therefore, bankruptcy predictions have received a lot of attention from researchers and professionals with the aim of creating timely signals for Better investment and government decisions have attracted many different useful methods, which we call bankruptcy prediction models, have been developed by researchers in order to solve the problems created during the evaluation process.

Research related to bankruptcy prediction has taken a serious form since 1960 AD, so that today we see the existence of many and varied bottlenecks for bankruptcy prediction. Their profitability is before the credit institutions respond to the company's loan request, they must predict the possibility of bankruptcy of the company in question, therefore correct and timely prediction of bankruptcy has an important impact on the operation and continuity of credit institutions.

Investors and creditors have a great desire to predict the financial bankruptcy of companies because in the event of bankruptcy they will bear the highest costs, therefore predicting the financial bankruptcy of companies is a very important issue in making a wrong decision and can have important consequences such as bottlenecks and financial crises. In general, it can be said that it is very important for all users of financial statements to be aware of this prediction. Time influences the decisions of decision makers. From the managerial point of view, financial bankruptcy forecasting tools make it possible to take timely strategic measures and avoid bankruptcy. When predicting bankruptcy, it is important for investors and creditors to be able to identify companies in crisis and those companies that go bankrupt and those that do not go bankrupt. Let's talk about the bankruptcy forecasting models that have the ability to predict the probability of bankruptcy of companies in financial crisis using financial variables. In most cases, several reasons together lead to the phenomenon of bankruptcy. But according to Dan and Brad Street's research, the main reasons for bankruptcy are financial and economic problems. In some cases, the reasons for bankruptcy are determined by examining financial statements and records. Accountants who have experience in analyzing the financial situation of declining companies can easily identify and determine the reasons for bankruptcy. But sometimes, some issues support proper account circulation in a business unit in a relatively short period of time and hide bankruptcy from the eyes of accountants. External factors include:

External causes of bankruptcy

Features of the economic system

Competition

Changes in business and improvements and transitions in public demand

Business fluctuations

Financing

Newton (1998) considers the internal factors of bankruptcy of business units as factors that can be Some business units prevented them. Most of these factors are caused by wrong decisions and the responsibility of them should be considered directly by the business unit itself. According to him, these factors include:

Inefficient management

Treachery and fraud

The results of this research are expected to be obtained by relying on the basic financial statements. Economic decisions should be the way forward. 1-2 Statement of the problem Forecasting is a key element in economic decisions and investors, creditors, management and other persons rely on forecasts and expectations for their economic conclusions. In order to predict the issue, in this case, it is possible to propose a model that informs the shareholders and other claimants about the financial crisis in the company. By predicting the collapse of companies, the necessary planning can be done to prevent their bankruptcy. Therefore, this study has identified the best important variables in financial forecasting by comprehensively examining the ratios and financial indicators and using separate models to provide a model to predict the financial crisis in companies admitted to the Tehran Stock Exchange.

By predicting the financial crisis of companies, the necessary planning can be done to prevent their bankruptcy, so finding methods to predict the financial crisis that happens before bankruptcy has been very important, and accounting information plays a significant role in this field. There are ways to predict bankruptcy.