Liquidity Analysis of Selected Public-Listed Companies in Malaysia

Carl B. McGowan, N. M. Baki Billah and Noor Azuddin Jakob

Issues in Economics and Business, 2015, vol. 1, issue 1, 1-20

Abstract: The Statement of Cash Flows is a crucial part of financial reporting. Thus, cash flow ratios have drawn the attention of practitioners and academic researchers to use to evaluate the performance of a company. This study examines, over the three years (2010-2012) period, the liquidity position of selected companies from three prominent sectors (Consumer products, Industrial products and Trading/Services) of the Malaysian economy using cash flow statement ratios and traditional liquidity ratios suggested by various researchers. Traditional ratios were obtained from the Osiris database and cash flow ratios were calculated by using financial statements of selected companies. Traditional ratios examined were - current ratio, quick ratio, total asset to total liabilities ratio, and interest coverage ratio. Similarly, cash flow ratios examined were¨Coperating cash flow ratio, critical needs cash coverage ratio, cash flow to total debt ratio, and cash interest coverage ratio. Correlation analysis was performed to investigate the strength of the relationship between traditional ratios and cash flow ratios. The empirical results of the correlation analysis show a statistically significant positive relationship between traditional ratios and cash flow ratios. Finally, pair t-tests results show that there is statistically significant difference between traditional ratios and cash flow ratios. The implication of the above empirical results suggests that traditional liquidity ratios should not be used solely for measuring liquidity since a company can have serious cash flow problems with positive liquidity ratios and increasing profits. Liquidity ratios developed using the statement of cash flows provide additional information or sometimes better insight on the financial strength or weakness of a company.

Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.macrothink.org/journal/index.php/ieb/article/view/7508 (application/pdf)
http://www.macrothink.org/journal/index.php/ieb/article/view/7508 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mth:ieb888:v:1:y:2015:i:1:p:1-20

Access Statistics for this article

Issues in Economics and Business is currently edited by Derrick Harden

More articles in Issues in Economics and Business from Macrothink Institute
Bibliographic data for series maintained by Technical Support Office ( this e-mail address is bad, please contact ).