Showing papers on "Cash flow statement published in 2018"
TL;DR: In this article, the authors examine the extent to which CFOs affect corporate cash holding policies and find that firms with strong CFO hold substantially less cash than firms with weak CFO, ceteris paribus.
50 citations
TL;DR: In this paper, the authors examined whether the motivation of institutional investors in monitoring a firm is positively related to the relative importance of the firm's stock in their portfolios and found that greater motivated monitoring institutional ownership is associated with a higher marginal value of corporate cash holdings, which cannot explain by other corporate governance measures and institution types.
44 citations
TL;DR: In this paper, the authors introduce a model of optimal cash holdings and payments that exploits survey payment diaries from Austria, Canada, France, Germany, the Netherlands and the United States, and show that once obtained, cash goes first because it ”burns” in consumers' wallets.
33 citations
TL;DR: In this paper, the authors examined the link between foreign ownership and corporate cash holdings and found that higher foreign ownership is associated with more corporate cash ownership, which suggests that foreign investors in the Vietnam stock market are subject to precautionary motive and agency motive forcing firms to hold more cash.
Abstract: This article examines the link between foreign ownership and corporate cash holdings. We utilize a data sample of firms listed on the Ho Chi Minh City stock exchange covering the period 2007–2015. Employing different econometric techniques for panel data, we find that higher foreign ownership is associated with more corporate cash holdings. This finding suggests that foreign investors in the Vietnam stock market are subject to precautionary motive and agency motive forcing firms to hold more cash. However, the outcome suggests potential agency problems because managers might subsequently use this cash reserve for their own advantages. These problems are even more pronounced in emerging markets where investor protection mechanism is weak. Accordingly, this highlights the importance of a monitoring mechanism to refrain corporate managers from investing in value-destroying projects.
29 citations
TL;DR: In this paper, the authors examined the effect of bank-appointed directors on corporate cash holdings for Indian firms and found that firms with bank-appointed directors hold less cash compared to firms without bank-recommended directors.
27 citations
TL;DR: In this paper, the authors examine three competing hypotheses: (1) agency cost hypothesis that cash giving reflects agency cost and destroys value for shareholders, (2) investment hypothesis that stock giving is an investment by management that aims for better future return, and (3) information hypothesis that giving has informational value to shareholders as cash is a critical resource at a firm and giving is a decision by managers who are insiders.
Abstract: In this article, we propose that giving in cash and non-cash (in-kind) differ in their relation with the giving firm’s future corporate financial performance (CFP) and only cash giving is associated with future CFP. Using a novel dataset from ASSET4 that differentiates corporate giving over a sample period of 2002–2012, we examine three competing hypotheses: (1) agency cost hypothesis that cash giving reflects agency cost and destroys value for shareholders, (2) investment hypothesis that cash giving is an investment by management that aims for better future return, and (3) information hypothesis that cash giving has informational value to shareholders as cash is a critical resource at a firm and giving is a decision by managers who are insiders. We find that indeed, only cash giving is positively associated with future CFP and firm value, measured by Fama–French five-factor abnormal risk-adjusted stock returns, future return on assets, and Tobin’s Q. In addition, we find that the positive association exists only between excess, i.e., unexpected, but not expected cash giving and future CFP. Our empirical findings support the information hypothesis, but neither the agency hypothesis nor the investment hypothesis, and are robust to a number of endogeneity tests, including orthogonalized cash giving, instrumental variable regression using geography-based instruments, and propensity score matching. Furthermore, we show that the positive association between future CFP and unexpected cash giving is only pronounced at firms with good governance and relatively higher sales growth where agency problems are less likely, and at firms with no alternative mechanisms to demonstrate the strength of cash flow. Additionally, we do not find evidence that suggests in-kind giving to possess any informational value.
20 citations
Book•
10 Feb 2018
TL;DR: In this article, the authors consider the problem of managing two assets, cash and an earning asset, when net cash flows are stochastic and when there are transfer costs for transferring assets from one form to the other.
Abstract: We consider the problem of managing two assets, cash and an earning asset, when net cash flows are stochastic and when there are transfer costs for transferring assets from one form to the other. Previous work on the stochastic cash-balance problem has assumed holding costs for holding excess cash and penalty costs for holding insufficient cash, with these costs assessed per period (the same period in which there is a single decision or transfer opportunity and a single random cash flow). This formulation is appropriate when a firm faces minimum (or zero) compensating-balance requirements, but not when the compensating-balance requirement involves an average deposit balance over a number of decision periods. A dynamic programming model is presented which appropriately represents the relevant cost function for a firm facing an average compensating-balance requirement. The dynamic programming solution to a numerical example is compared to that of a static two-sided (s, S) policy; the optimal dynamic program...
18 citations
TL;DR: Analysis of an investment decision involving a sustainable, energy efficient, greenhouse gases (GHG) reducing asset and incorporate the value of carbon emission allowances for the investing company shows that IRR is influenced by volatility and uncertainty of carbon credit cash flows.
17 citations
TL;DR: In this article, the authors investigate the association between audit firm tenure and earnings management and whether it is conditional on using the same set of accounting standards and find that the negative association only holds for those firms which had not changed their accounting standards.
Abstract: The objective of this paper is to investigate the association between audit firm tenure and earnings management (EM) and whether it is conditional on using the same set of accounting standards. The sample of this study comprises UK listed companies for five years by collecting data using WorldScope for financial and accounting standards data and FAME databases for audit tenure data. We use discretionary accruals measures as our measure of EM. We measure total accruals and current accruals using the cash flow statement approach. UK data allows us to examine the impact of changing accounting standards because one group of firms continually reported under UK GAAP whereas another group of firms changed its accounting standards from UK GAAP to IFRS. We find, in accordance with prior studies, a negative association between audit firm tenure and earnings management for our pooled UK sample. However, we find that this negative association only holds for those firms which had not changed their accounting standards. Furthermore, we document empirical results that the effect of audit firm tenure on EM is contingent upon the same set of accounting standards being used. The results agree with the recent trend of research that suggests that longer audit firm tenure does not compromise auditor independence but in fact improves the audit quality. Moreover, the results reported in the paper call for a careful cost benefit analysis by standards setters before implementing a dramatic change in accounting standards. Such changes could have a negative impact on audit quality. One possible explanation for both the accounting standards results is that auditors need a stable and strong learning environment if they are to mitigate earnings management. The results of this paper argue strongly against mandatory audit firm rotation through illustrating the positive impact that extended audit firm tenure has on improving audit quality.
17 citations
TL;DR: In this paper, the authors examine the corporate cash holdings of listed shipping companies and show that shipping firms hold more cash than similar firms in other asset-heavy industries, and this valuation effect is most pronounced in bad times of the business cycle when external capital supply tends to becomes carce.
Abstract: We examine the corporate cash holdings of listed shipping companies and show that shipping firms hold more cash than similar firms in other asset-heavy industries. Higher cash holdings in the shipping industry are not attributable to firm- or country-level characteristics, but rather to the higher marginal value of cash. Shipping firms value an additional dollar of cash higher than matched manufacturing firms, regardless of their financial constraints status, but depending on their cultural background and the cyclicality of their expansion opportunities. Less procyclical shipping firms have a higher marginal value of cash, and this valuation effect is most pronounced in bad times of the business cycle when external capital supply tends to becomescarce.Overall, it appears that shipping companies are more conservative than their peers in managing their cash positions.
16 citations
TL;DR: In this article, the authors examined the relationship between risk factor disclosure and future cash flow and stock returns and found that risk factor disclosures not only provide information about the risk of the firm, but also provide information of future cash flows.
Abstract: Prior research finds that mandatory risk factor disclosures are informative to investors in that they increase their assessments of firm risk (Kravet and Muslu 2013; Campbell et al. 2014; Hope et al. 2016). However, the literature is silent as to whether these disclosures provide information about future cash flows and, ultimately, their implications for firm value. We address this question by examining the association between Form 10-K risk factor disclosures and future cash flows and stock returns. We use the setting of taxes because it is easy to identify the specific income and cash flow statement line items to which these risks relate. We offer two main results. First, we find that tax risk factor disclosures are positively associated with future cash flows. This finding suggests that, on average, managers are taking healthy levels of risk, as risky tax positions are rewarded with future tax savings. Second, we find that investors do not fully incorporate this relation into stock prices at the time of the risk factor disclosure. Instead, investors do not fully impound this information into stock prices until the implications of risk factor disclosures on future cash flows are more saliently disclosed the following year. Overall, our results suggest that risk factor disclosures not only provide information about the risk of the firm, but also provide information about future cash flows of the firm. On average, the outcomes from these risks taken by managers are value increasing, and investors do not fully incorporate this relation into stock prices.
TL;DR: In this article, the authors examine the determinants of CFRs, investors' differential beliefs about CFRs and the information content of the CFRs by focusing on abnormal trading volume and price reactions to CFRs.
Posted Content•
TL;DR: In this paper, a multi-period approach to the valuation of streams of risky cash flows is proposed, which is based on the expected value of the output's or input's magnitude and the risk of output cash flow, as captured by a risk measure.
Abstract: Based on risk-value models we introduce a multi-period approach to the valuation of streams of risky cash flows. The valuation is based on the (expected) value of the output’s or input’s magnitude and the risk of the output cash flow, as captured by a risk measure. We derive three formulae for valuing single cash flows and utilize the principles of separate valuation and of cumulating the cash flows to derive a multi-period valuation method. In an axiomatic way, the article sets the foundations for a new approach and suggests several directions for its further development.
TL;DR: In this paper, the authors find very strong and consistent evidence that investments in strong-governance firms (managers not entrenched) are strongly sensitive to availability of internal cash flows while such sensitivity is not different from zero for entrenched management.
Abstract: We find very strong and consistent evidence that investments in Strong-Governance firms (managers not entrenched) are strongly sensitive to availability of internal cash flows while such sensitivity is not different from zero for Weak-Governance firms (entrenched management). We interpret this as evidence in support of Kaplan and Zingales' (1997) contention that sensitivity of investments to cash flows is not an adequate measure of financing constraints. More importantly, our findings are consistent with Kaplan and Zingales’ conjecture that the observed sensitivity of investments to cash flows in firms that do not face financing constraints may be driven by excessive risk aversion of managers.
TL;DR: In this article, the authors developed an empirical analysis of the relevance of accounting information when biological assets are measured at fair value, and they found that when they were measured at FV, the prediction accuracy of future cash flows improved as the ratio of biological assets to total assets increases.
Abstract: This study develops an empirical analysis of the relevance of accounting information when biological assets are measured at fair value. We use an international sample of firms with biological assets. We find that biological assets influence unpredictability when they are measured at historical cost (HC). In this case, the ability of accounting data to predict future cash flows diminishes as the proportion of biological assets on total assets increases. The valuation at fair value (FV) switches this negative influence of biological assets to a positive one. We find that when they are measured at FV, the prediction accuracy of future cash flows improves as the ratio of biological assets to total assets increases. This evidence is robust to different measures of prediction accuracy, as well as to the improvement of accounting standards, regardless of FV, over time. The evidence is weaker for bearer plants.
TL;DR: In this article, the authors exploit the choice allowed by International Financial Reporting Standards (IFRS) regarding the presentation of interest payments on the cash flow statement to answer two related questions.
Abstract: In this paper we exploit the choice allowed by International Financial Reporting Standards (IFRS) regarding the presentation of interest payments on the cash flow statement to answer two related qu...
Book Chapter•
01 Jan 2018
TL;DR: In this paper, the authors analyzed the liquidity risk of 48 polluting medium-sized enterprises whose plants are the major sources of environmental pollution in Serbia and compared it with the liquidity of medium enterprises sector and Serbian economy.
Abstract: The aim of this paper is to analyze the liquidity risk of selected
polluting enterprises in Serbia. The specific objective of the paper relates on the comparison of polluting medium enterprises liquidity risk with liquidity of medium enterprises sector and Serbian economy. Illiquidity risk assessment is determined by liquidity indicators, net working capital and cash flow statement. The research is conducted on the group of 48 polluting mediumsized enterprises whose plants are the major sources of environmental pollution in Serbia. Selected liquidity indicators are determined by financial statements information disclosed by Serbian Business Registers Agency. The
quantitative and qualitative analysis covers the period from 2010 to 2015. The values and trends of liquidity indicators of the polluting medium enterprises group represent an unfavourable assumption for their short-term financial stability. Positive net working capital shows that polluting medium enterprises have sufficient long-term fund to cover long-term assets and the part of their inventories.
TL;DR: In this paper, comparability levels among the accounting choices in the Statements of Cash Flows (SCF) of Brazilian public companies and to discover factors that could explain these choices were determined.
01 Jan 2018
TL;DR: Development of spreadsheet-based integrated transaction processing systems and financial reporting systems is intended to optimize the capabilities of spreadsheet in accounting data processing to test its technical and operational feasibility.
Abstract: Development of spreadsheet-based integrated transaction processing systems and financial reporting systems is intended to optimize the capabilities of spreadsheet in accounting data processing. The purpose of this study are: 1) to describe the spreadsheet-based integrated transaction processing systems and financial reporting systems; 2) to test its technical and operational feasibility. This study type is research and development. The main steps of study are: 1) needs analysis (need assessment); 2) developing spreadsheet-based integrated transaction processing systems and financial reporting systems; and 3) testing the feasibility of spreadsheet-based integrated transaction processing systems and financial reporting systems. The technical feasibility include the ability of hardware and operating systems to respond the application of accounting, simplicity and ease of use. Operational feasibility include the ability of users using accounting applications, the ability of accounting applications to produce information, and control applications of the accounting applications. The instrument used to assess the technical and operational feasibility of the systems is the expert perception questionnaire. The instrument uses 4 Likert scale, from 1 (strongly disagree) to 4 (strongly agree). Data were analyzed using percentage analysis by comparing the number of answers within one (1) item by the number of ideal answer within one (1) item. Spreadsheet-based integrated transaction processing systems and financial reporting systems integrate sales, purchases, and cash transaction processing systems to produce financial reports (statement of profit or loss and other comprehensive income, statement of changes in equity, statement of financial position, and statement of cash flows) and other reports. Spreadsheet-based integrated transaction processing systems and financial reporting systems is feasible from the technical aspects (87.50%) and operational aspects (84.17%).
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TL;DR: In this paper, the authors discuss the necessity of operationalization and the differences between nominal and real values, and present the different payment streams, with receipts of payment and outpayments being the two fundamental concepts behind the flows of financial resources.
Abstract: After discussing the necessity of operationalisation and the differences between nominal and real values, the chapter presents the different payment streams, with receipts of payment and outpayments being the two fundamental concepts behind the flows of financial resources. Various ways of ensuring liquidity are described, and short-term and long-term coverage ratios are presented as measuring instruments. Cash flow calculations are shown to be significant for financial management and budgeting. The characteristics of expenditures and revenues are shown, and finance calculations and forms of financing are introduced. The different types of expenses and income are explained, as are methods for calculating earnings, including income statements. Cash flow statements and balance sheets are also presented. Operational and external costs and outputs are described, leading to the proposal for new kinds of financial statement where these are taken into account, using social and ecological accounting to produce outcome-impact statements.
University of New England (Australia)1, Fairfield University2, University of North Texas3, Bucharest University of Economic Studies4, American University in Cairo5, University of Thessaly6, Chulalongkorn University7, National Cheng Kung University8, Adolfo Ibáñez University9, HHL Leipzig Graduate School of Management10
TL;DR: This paper found that the ability to perform accurate calculations, a fundamental foundation of financial numeracy, has an effect on financial decision making that has been ignored in previous studies of financial statement users and uses.
TL;DR: In this paper, the authors examined the relationship between the spread between a country's enacted statutory rate for the year and the cash effective tax rate, and two uses of cash (investment and dividend payout) for an international sample of firms.
Abstract: Cash tax avoidance activities can serves as a significant source of additional cash flows for firms; how managers utilize this additional cash source and the resulting consequences is an empirical question To answer our research question, we examine the association between the spread between a country’s enacted statutory rate for the year and the cash effective tax rate, and two uses of cash – investment and dividend payout – for an international sample of firms In the cross-section, we find the firms are more likely to invest cash tax savings rather than distribute them in the form of dividends and find that this results in inefficient over investment for firms When partitioning on country-level governance, we find that firms located in weak-governance countries actually under invest and pay out larger amounts of tax savings in the form of dividends Our results suggest that firms’ cash tax avoidance activities have a real effect on firm decisions, namely investment and payout policies, and this effect varies based on the country in which the firm operates
TL;DR: In this paper, the authors determined the confirming effects of the financial statement analysis to assess the profitability of the Kirkuk Company for producing constructional materials and found that there are insignificant relationships between profitability with asset regulated and assets utilization.
Abstract: The present study entitled “financial statement analysis and assessing the profitability of the Kirkuk’s Company for producing constructional materials”. The main goal of the accounting department in the firms is to prepare the reliable financial statements in order to make their valid balance sheets, income statements and cash flow statement. This paper determines the confirming effects of the financial statement analysis to assess the profitability of the Kirkuk Company. The data in this study is based on the secondary data and it collected from the past and present performance of Kirkuk’s Company for producing constructional materials. To achieve the research goal, four categories of the financial ratios were utilized for testing the study’s hypothesis. This group of ratios was applied to assess the financial situation of the company in the years between “2005 to 2011” by using different techniques of financial statement analysis. The results clearly show that, there are insignificant relationships between profitability with asset regulated and assets utilization. At the same times, there is a weak relationship between profitability and liquidity.
12 Aug 2018
TL;DR: In this article, the authors conducted a study in Malang Regency, Batu City, and Malang City using descriptive qualitative method and data collection techniques were done by interview and documentation with sampling technique using purposive sampling and snowball sampling.
Abstract: Many Micro, Small, and Medium Enterprises (MSMEs) are still carrying out a simple accounting record and have not implemented accrual basis method. It is expected that in the future all MSMEs can make more transparency and accountability report by using accrual method so it can assist MSMEs in applying credit to banks or other investors to increase the business capital. This study was conducted in Malang Regency, Batu City, and Malang City. This study used descriptive qualitative method. The data collection techniques were done by interview and documentation with sampling technique using purposive sampling and snowball sampling. The collected data will be analyzed by interactive analysis method including data reduction, data presentation, and data verification or interpretation. The results showed that the owners of SMEs in managing their finances use simple accounting by using accrual method so that the financial statements produced more accurate than if the owners of MSMEs use cash method. The owners of SMEs do not need to make complete financial statements, they may use three types of financial statements, namely: income statement, balance sheet, and cash flow statement. The income statement is used to find out how much the profit or loss of the MSMEs, the balance sheet is used to find out the assets, liabilities, equity, and cash flow statement is used to find out the changes occurring during the period of operating, investing, and financing activities. These three types of financial statements have already been used by MSME owners as one of the requirements to obtain credit from banks or other investors.
TL;DR: In this paper, the authors investigate the role of accounting-based complexity in shaping managers' non-GAAP disclosure choices and the quality of nonGAAP earnings information, and they find that managers' propensity to report a non GAAP earnings metric increases with the degree of accounting complexity as reported in financial statement filings.
Abstract: The continuing proliferation of non-GAAP (or adjusted) earnings measures in corporate disclosures has led accounting standard-setters and financial reporting regulators to debate whether this disclosure trend is in response to the increasing complexity of GAAP. We inform this debate by investigating the role of accounting-based complexity in shaping managers’ non-GAAP disclosure choices and the quality of non-GAAP earnings information. Using an XBRL-based measure of accounting reporting complexity that links directly to the FASB codification, we find that managers’ propensity to report a non-GAAP earnings metric increases with the degree of accounting complexity as reported in financial statement filings. Notably, the effect of accounting-based complexity on non-GAAP disclosure is robust to, and distinct from, the effects arising from operational complexity and the readability of the financial report. Our results also indicate that managers’ non-GAAP disclosure propensity is particularly sensitive to the reporting complexity of the firm’s income and cash flow statements as well as the complexity of specific accounting concepts appearing in the filings. Furthermore, we find that the earnings items managers exclude when deriving the non-GAAP earnings figure are of higher quality when accounting complexity is high. This result suggests that in the face of increasing accounting complexity, managers use non-GAAP adjustments as a tool to better communicate the firm’s financial performance. Taken together, our study is the first to provide empirical evidence that non-GAAP reporting is in-part a strategic response to the complexity of accounting principles.
TL;DR: The authors used a binary regression model with theoretically supported variables obtained from the cash flow statement to forecast firm success versus distress, and found that the overall model correctly classifies organizations 90.290 percent of the time.
Abstract: Many bankruptcy prediction models have been created over the years using a mix of variables derived mostly from accrual-based accounting statements and were industry specific. The primary issue with using a model comprised of accrual-based variables is that firm management can manipulate different components and make the balance sheet and income statement misleading (Wanuga 2006). Thus, firms appear financially healthy yet unable to meet the day-to-day cash flow needs of the firm; these financial issues are less likely to be hidden in the cash flow statement (Sharma 2001). In this study, we use a binary regression model with theoretically supported variables obtained from the cash flow statement to forecast firm success versus distress. Of particular interest, we examine firms representing 85 industries using firm data during and immediately following the greatest recession in United States history (Fieldhouse 2014; Lee 2014). The model is generic in the sense that it can be used to predict the probability of success-distress of any entity using the three major financial statements. We find that the overall model correctly classifies organizations 90.290 percent of the time.
14 Dec 2018
TL;DR: In this article, the authors show the importance of efficient cash flow management in insurance companies from the aspect of their planning, and to this effect, the simulation of the internal report on cash flows that is done monthly for domestic insurance companies in the function of efficient liquidity management of the insurance company.
Abstract: The activity of insurance and operation of insurance companies is very important in the context of development of financial organizations that operate in the territory of many countries, including the Republic of Serbia. A report that is of crucial importance for insurance companies in the context of an adequate cash flow management is a cash flow statement. Bearing in mind the specificity of the insurance industry, as well as the risks associated with it, cash flow is the basic focus of financial management. For insurance companies, it presents an overview of cash flows that occurred during the previous accounting period. The aim of the paper is to show the importance of efficient cash flow management in insurance companies from the aspect of their planning, and to this effect, the paper provides the simulation of the internal report on cash flows that is done monthly for domestic insurance companies in the function of efficient liquidity management of the insurance company.
TL;DR: In this paper, the authors developed a model that shows how non-financial firms that prefer predictable earnings jointly optimize their hedging strategy and the choice between fair-value and hedge accounting, and examined the implications of these decisions for earnings predictability under SFAS 133/IAS 39.
Abstract: Whereas empirical studies suggest that firm hedging is influenced by accounting standards such as SFAS 133 and IAS 39, the nature of earnings risk management remains a puzzle. I develop a model that shows how non-financial firms that prefer predictable earnings jointly optimize their hedging strategy and the choice between fair-value and hedge accounting. I also examine the implications of these decisions for earnings predictability under SFAS 133/IAS 39. In this model, which has two accounting periods, earnings uncertainty arises from economic shocks and accounting mismatches. The specific influence of accounting mismatches is isolated with two benchmarks, one for firm hedging (cash flow hedging) and another for an accounting system that fully complies with the matching principle. In this forward-looking analysis, most firms significantly decrease the hedging of long-term earnings when faced with persistent price dynamics. Under non-persistent price dynamics, the levels of long-term earnings hedging are only slightly reduced. Therefore, the influence of accounting mismatches on firm hedging is highly dependent on the economic environment in which a firm operates, which suggests that the potential influence of accounting on firm hedging may be difficult to identify in archival studies. The analysis also offers a forward-looking perspective on the changing properties of earnings since the late 1970s that supplements the existing body of archival accounting studies. For example, under persistent price dynamics, forward-looking short-term earnings volatility may increase tenfold or more for cash flow hedging under fair-value accounting compared with a perfectly matched accounting system.
TL;DR: This article examined whether investors are able to fully anticipate the pricing implications of cash flow hedges in the banking industry and found that mark-to-market adjustments on cash flow hedge are inversely related to future cash flows and that investors underestimate the extent of this inverse relation.
Abstract: We examine whether investors are able to fully anticipate the pricing implications of cash flow hedges in the banking industry. We show that mark-to-market adjustments on cash flow hedges are inversely related to future cash flows and that investors underestimate the extent of this inverse relation. Our evidence supports the notion that incomplete information on value relevant parameters makes it difficult for investors to accurately predict the effects of current cash flow hedge adjustments on future cash flows. Our results are also consistent with the evidence that investors have limited attention such that information, particularly information that is difficult to discern, is not fully reflected in stock prices. Thus, the additional disclosures mandated by regulatory agencies in the banking industry are not sufficient to overcome the challenges associated with incomplete information and investors’ limited attention.
Posted Content•
TL;DR: In this paper, the authors reviewed the latest studies and studied in detail the evolution of cash flow ratios on small and medium enterprises in Romania for a period between 2006 and 2014, highlighting the effects of the financial crisis on these enterprises.
Abstract: Financial reporting system includes three main pillars, namely balance sheet, income statement and cash flow. If the balance sheet reflects shareholders’ wealth at a given time, income statement demonstrates the efficiency or inefficiency of the activity and cash flows measures the company’s viability. This is the reason for which I have approached the cash flow matter in this paper, reviewing the latest studies and studying in detail the evolution of cash flow ratios on small and medium enterprises in Romania for a period between 2006 and 2014, highlighting the effects of the financial crisis on these enterprises.