Abstract
This paper examines the nature of interaction between Kida’s model, the cash flows (operating, investing, financing) and the size. It covers the period between 2013 and 2014 based on annual financial statement of Palestinian listed companies in Palestine Stock Exchange. In order to test the hypotheses of the study, the researcher used independent samples T-test. The results show that we accept all null hypotheses, so Kida’s model does not distinguish between high and low cash flow (operating, investing, financing) and the size. Other results show that the model is unable sometimes to predict the failure of companies.
Highlights
The failure of companies is one of the hottest topics that guide a lot of writers and researchers to study it, because it may result in negative effects on the national economy, and society as a whole
Because of its serious impact on the company level and the national economy and even on a global scale, since the failure and the bankruptcy of a number of large international companies like what happen in September 15 2008 when Lehman Brothers filed for bankruptcy (Buckley, 2011), which in turn lead to a financial crisis
The income statement shows the result of the business during the financial period, and there is no relationship between these profits and the cash available in the company, but it expresses the difference between the net sales and expenses of the company in accordance with the matching principle based on the accrual basis
Summary
The failure of companies is one of the hottest topics that guide a lot of writers and researchers to study it, because it may result in negative effects on the national economy, and society as a whole (management, current and prospective investors, banks, creditor, auditors, and government agencies). Many studies using financial ratios as tools for some models such as Altman and Kida in order to predict the failure before it happens. After the crisis, it important to predict and know the relation between the financial ratio in the models and the cash flows. As for the Middle East (Rmo & Alwatar, 2010) aim to find a liable way to predict the failure by applying the model of Altman on a number of Iraqi companies. The results showed that there was not a great ability for the models to predict the financial failure of Jordanian shareholding companies. The study aimed to examine the ability of financial ratios to predict defaults on Jordanian companies. At the local level there is a study for (Shaheen & Mater ,2011) The study aims to reach the best combination of financial ratios that can be used to predict defaults on banking enterprises in Palestine and to distinguish between distressed and non-distressed
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