Empirical analysis of financial early warning based on cash flow

Abstract

Combined the literature review with the practices in China, authors designed a financial pre-warning index system including key cash flow ratios, traditional asset and profit ratio. Considered as financially pre-failure enterprises, 48 ST companies were selected as the research samples from the listed companies in Shanghai and Shenzhen Stock Exchange from 2007 to 2008, and another 48 non-ST companies were selected as the comparison. The financial data for three years before ST were in adopted, and principal component analysis (PCA) was applied to construct the principal component prediction model to estimate the early warning value of different financial troublesome enterprises.