An Analysis of External Cash Flows of Capital Groups

Purpose: The aim of the article is to analyze the external cash flows of capital groups. Cash flows have a double dimension, internal and external. Internal cash flows are of exclusive nature as they create private benefits as a result of achieving additional cash flows through commercial and civil law transactions between the parent entity and its subsidiaries or associates. External cash flows are part of financial reporting as they originate from economic events that are reflected in the accounting records, and when synthesized are reflected in the cash flow statement. Design/Methodology/Approach: The article is based on two types of ratios, ratios calculated on the basis of the consolidated financial statements of the capital group and ratios calculated on the basis of separate financial statements of the parent company. The hypothesis put forward in the article is that the assessment of cash flows performed on the basis of a consolidated statement of the capital group differs from the assessment of cash flows of the parent company. Sufficiency and cash productivity ratios were used to assess cash flows of the Polish capital groups. The indicators are to enable the assessment of cash flows of the capital group in the context of the financial standing of the parent companies and other members of the capital group, mainly with respect to the financial liquidity and solvency of the entity. Findings: The lack of correlation between the indicators from the parent company and the capital group indicates that the main motive for merging into capital groups is not the improvement of external financial results presented by cash financial indicators. Practical Implications: The research results indicate that financial results are not the motive for combining enterprises into capital groups. Originality/Value: The article examines the external cash flows (cash effects) of capital groups on the basis of consolidated and separate financial statements, assesses the cash efficiency and effectiveness of Polish capital groups.