The Role of Cash Flow in Explaining the Change in Company Liquidity

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List of Abbreviation :
|ASE |Amman Stock Exchange | |E |Earnings | |WCFO |working capital from operations | |CFFO |cash flows from operations | |CR |Current Ratio | |QR |Quick Ratio | |CCC |Cash conversion cycle |

List of Contents:
Introduction…………………………………………………………....3 The Importance of the study…………………………………………...4 The Questions of the study…………………………………………….4 Hypotheses of the Study…………………………………………….…4 The Methodology and Data of the study………………………………4 The Previous Studies………………………………………………..…5 Concept of Cash Flow………………………………………………....6 Classification of cash flows……………………………………………8 Cash Flow and Liquidity………………………………………………9 How Do I Use a Cash Flow Statement to Monitor Liquidity………….9 Ways to Solve Cash Flow Problems…………………………………..10 The Role of cash Flow in predicting Liquidity………………………..11 liquidity measurement………………………………………………....12 Sample Selection………………………………………………….……12 Conclusions………………………………………………………...…..15 References…………………………………………………...……..…. 16

Introduction:
In recent years, the rise in corporate bankruptcy has led to an increased interest in the examination of company's liquidity. Credit analysts and other users of accounting data involved in the evaluation of a firm's financial position are often concerned with both the measurement of current liquidity, as well as the accurate prediction of future liquidity. Trends in a company's liquidity position make it possible to use past and current information to help examine liquidity. These measurements are often used to examine the company's financial position and evaluate its ability to meet financial obligations including the likelihood of bankruptcy. Since Liquidity is considered a crucial input for financial decisions, a major point of interest is whether earnings ( which include accruals ( or cash flows provide the superior explanatory ability with respect to Liquidity. Cash flow according to international accounting standards: IAS 7 has the ability to evaluate company’s liquidity and its ability to face short term and long term obligations.

The Importance of the study:
This study focused on the need for analyzing the accounting information in the reports by listed companies in ASEM to help decision makers especially those related to the variables affecting liquidity. And we can summaries the importance of this study in the following points: 1- To know the ability of cash flow in predicting and explaining the future performance of a company especially liquidity. 2- To know Liquidity measures tools and how they could reflects the level of liquidity in the company.

The Questions of the study:
1-Do the accounting flow variables of accrual earnings, working capital from operations, and cash from operations individually provide information useful in explaining changes in company liquidity? 2-Do the accounting flow variables of accrual earnings, working capital from operations, and cash from operations incrementally provide information useful in explaining changes in company liquidity?

Hypotheses of the Study:
Hypotheses are presented concerning the incremental explanatory power of each of the three accounting variables. The first two hypotheses concern the incremental...
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