Abstract
One approach to evaluating the usefulness of financial information is to measure the ability to predict the outcome of future events. This study will evaluate the merits of alternative methods of reporting funds flows in terms of the prediction of bankruptcy. The funds flow controversy provides three measurement alternatives--net income, working capital, and cash. A logistic regression model was constructed for each of the three measurement alternatives. The dependent variable in this study is whether an enterprise is bankrupt or nonbankrupt. The primary purpose of this study is to compare the predictive ability of the three measurements, net income, working capital, and cash. The secondary purpose is to measure how well a funds flow description of failure (AFFDOF) predicts the failure of an enterprise. Based on the evidence, it appears that there are no significant differences among the measurements in predicting bankruptcy. Also, it appears that the AFFDOF model is significant in predicting bankruptcy.
Malone, Fannie Lee (1984). Alternative funds flow measure as predictors of failure. Texas A&M University. Texas A&M University. Libraries. Available electronically from
https : / /hdl .handle .net /1969 .1 /DISSERTATIONS -396752.