Abstract
A firm with proper cash flow management can increase its financial performance, while improper management might lead to financial failure. Therefore, it is significant for a firm to manage cash inflows and outflows properly. The current study investigates the effect of cash flow from operations (CFOs) on the financial performance of insurance and manufacturing companies in Saudi Arabia. The data were extracted from companies’ annual reports by considering Return on Assets (ROA) and Return on Equity (ROE) as dependent variables, CFOs as an explanatory variable, firm size (SIZE) and Leverage (LEV) as control variables, and an industry dummy. The results report a positive and significant association between financial performance (ROA and ROE) and operating cash flows (CFOs), and a negative association for SIZE and LEV. Therefore, the study concludes that the firms’ operating cash flows in the insurance and manufacturing sectors in Saudi Arabia affect financial performance.
Highlights
Financial performance evaluation is one of the most important concerns of all companies that use distinct financial resources to undertake successful projects to achieve profit maximization and wealth maximization
Iable, which differentiates between the insurance and manufacturing industry, shows a negative and Further, the association between firm size and fisignificant impact on the manufacturing industry’s nancial performance (ROA) is negative and signififinancial performance (ROA)
The current study examines the impact of operat- and manufacturing sectors’ firms are maintaining ing cash flows on insurance and manufacturing a feasible amount of debt, which might increase the sectors’ financial performance in Saudi Arabia. firms’ value
Summary
Financial performance evaluation is one of the most important concerns of all companies that use distinct financial resources to undertake successful projects to achieve profit maximization and wealth maximization. The findings reveal that the cash flow The empirical studies review shows that the redetermines a significant role in determining the searchers have used different sectors, variables in insurance sector’s financial performance. The current ating cash flow, ROA, CAR had a significant effect study might be considered an initiator in conducton company financial performance Ukhriyawati ing such a relationship between the two important et al (2017) studied the influence of assets struc- sectors of Saudi Arabia. They found that free cash flow influences positively and significantly financial perfor- The current study examining the impact of opermance, whereas earnings influence positively and ating cash flows on financial performance has the significantly the companies’ value.
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