Studies in the effectiveness of cash flows from operating and investing activities as possible early indicators of bankruptcy

January, Carol (2001-12)

Thesis (MBA)--Stellenbosch University, 2001.

Thesis

ENGLISH ABSTRACT: Users of Cash Flow Statements expect the information provided as cash flow from operating and investing activities to serve as a possible indicator that the company is facing bankruptcy. Traditionally, companies disclose depreciation as an operating activity and replacement of fixed assets as an investing activity. Companies that direct cash payments toward dividend and future expansion without addressing replacement of fixed assets are creating an unrealistic picture of their operating and investing activities. Generally accepted accounting practices (GAAP) have limited its disclosure requirements and has not addressed the issue of separating the expansion of fixed assets from replacement. This mini-study project researches the impact of disclosing depreciation as an investing activity and the replacement of fixed assets as an operating activity. Based on the findings, it is recommended that GAAP make it a requirement that the replacement and expansion of fixed assets be disclosed separately. It is further recommended that either depreciation be disclosed as an investing activity, or that replacement of fixed assets be disclosed as an operating activity on the Cash Flow Statement. The methods of disclosure investigated in the study will lead to an improvement in the ability of the two activities to serve as possible early indicators of bankruptcy.

AFRIKAANSE OPSOMMING: Gebruikers van kontantvloeistate verwag dat die inligting wat verskaf word van die bedryfs- en investeringsaktiwiteite as 'n moontlike indikator van die ondergang van die onderneming moet kan dien. Waardevermindering word tradisioneel as 'n bedryfsaktiwiteit openbaar, terwyl die vervanging van vaste bates as 'n investeringsaktiwiteit openbaar word. Ondernemings wat direkte kontantbetalings as dividende en toekomstige uitbreiding openbaar sonder dat die vervanging van vaste bates aangespreek word, skep 'n onrealistiese beeld van hul bedryfs- en investeringsaktiwiteite. Algemeen aanvaarde rekeningkundige beginsels het die openbaarmakingsvereistes beperk en spreek nie die skeiding tussen uitbreiding van bates en die vervanging daarvan aan nie. Hierdie mini-werkstuk ondersoek die impak van die openbaarmaking van waardevermindering as 'n investeringsaktiwiteit en vervanging van vaste bates as 'n bedryfsaktiwiteit. Gebaseer op die bevindinge word daar aanbeveel dat die algemeen aanvaarde rekeningkundige beginsels dit 'n vereiste maak dat die vervanging en uitbreiding van vaste bates apart openbaar word. Verder word aanbeveel dat waardevermindering as 'n investeringsaktiwiteit of vervanging van vaste bates as 'n bedryfsaktiwiteit in die kontantvloeistaat openbaar word.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/52464
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