CASH FLOW RATIO AS A MEASURE OF PERFORMANCE OF …
[Pages:309]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
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DECLARATION I 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.
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DEDICATION This 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.
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ACKNOWLEDGEMENT I 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
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ABSTRACT This 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.
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TABLE OF CONTENTS
Declaration
2
Dedication
3
Acknowledgement
4
Abstract
5
Table of Contents
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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
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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
2.5 Corporate governance vs. the valuation and performance of a firm
78
2.6 The performance and valuation of a firm with its corporate governance
80
2.7 A preview of Ghana as an emerging economy
85
2.8 Economic reforms in Ghana
85
2.9 Assistance to Ghana by Donors
87
2.10 Ghana's capital market
87
2.11 Conclusion
90
Chapter III: Data Collection and Presentation
91
3.1.1 Setting of the present research
93
3.2 Methods of data collection / presentation
107
3.2.1 Approaches to data collection
107
3.2.2 Archival data sources
110
3.2.3 Collection of industrial data on Ghana and the United States
111
3.2.4 Sampling and its types
117
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3.3 Descriptive data 3.3.1 Descriptive statistics 3.3.2 Data presentation 3.3.3 Profile of the selected companies for comparison
3.4 Quantitative data 3.4.1 Data, information and knowledge 3.4.2 Type of data used 3.4.3 Derived quantitative data 3.4.4 Other classifications of quantitative data 3.4.4.1 Cross sectional and time-series data 3.4.4.2 Benchmarking using quantitative data 3.4.5 Financial statements analysis 3.4.6 Description of the 9 financial ratios calculations (Giacomino & Mielke) 3.4.7 Absolute and relative information 3.4.8 Time aspects
3.5 Ethics in research 3.5.1 Anonymity and confidentiality
3.6 Conclusion
Chapter IV: Analysis of Data and Test of Hypothesis 4.1 Introduction 4.2 Quantitative data analysis
127 127 218 130 134 138 140 142 143 143 143 145
150 151 152 154 157 159
162 162 163
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