Effective cash management in businesses and cash flow focused approach to financial failure predict: A research in Borsa İstanbul

The financial strength of businesses depends on their ability to manage cash flow correctly as well as make profits. Cash flow management, which is an important part of working capital management, is even more important during the financial crisis. The most critical tool of effective cash management is the cash flow statement. Because the balance sheets and income statements of businesses under threat of bankruptcy are more open to accounting manipulation, these statements may not provide reliable information about the state of the business Therefore, traditional bankruptcy prediction models based on accrual accounting data may not predict financial failure in time. This study aims to examine the usability of the data obtained from the cash flow statement in predicting financial failure. In the study, financial data of 168 manufacturing industry companies listed in Borsa Istanbul in 2020 were used to retrospectively predict financial failure 3 years ago for this, 46 companies that comply with the failure criteria are grouped as a financial failure, and 46 companies are grouped as successful. The independent variables are; 12 financial ratios based on cash flows from operating activities. As a result of the study using the Logit model; financial failure was predicted correctly 1 and 2 years ago at a rate of 73.90% and 3 years ago at a rate of 71.70%. In addition, the predictive power of this cash-based model was also compared with the Altman-Z Score Model, which is widely used in financial failure prediction and based on accrual-based data. The differences and similarities between the results were also discussed.