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Liquidity Analysis of Selected Public-Listed Companies in Malaysia

Author

Listed:
  • Carl B. McGowan
  • N. M. Baki Billah
  • Noor Azuddin Jakob

Abstract

The Statement of Cash Flows is a crucial part of financial reporting. Thus, cash flow ratios have drawn the attention of practitioners and academic researchers to use to evaluate the performance of a company. This study examines, over the three years (2010-2012) period, the liquidity position of selected companies from three prominent sectors (Consumer products, Industrial products and Trading/Services) of the Malaysian economy using cash flow statement ratios and traditional liquidity ratios suggested by various researchers. Traditional ratios were obtained from the Osiris database and cash flow ratios were calculated by using financial statements of selected companies. Traditional ratios examined were - current ratio, quick ratio, total asset to total liabilities ratio, and interest coverage ratio. Similarly, cash flow ratios examined were¨Coperating cash flow ratio, critical needs cash coverage ratio, cash flow to total debt ratio, and cash interest coverage ratio. Correlation analysis was performed to investigate the strength of the relationship between traditional ratios and cash flow ratios. The empirical results of the correlation analysis show a statistically significant positive relationship between traditional ratios and cash flow ratios. Finally, pair t-tests results show that there is statistically significant difference between traditional ratios and cash flow ratios. The implication of the above empirical results suggests that traditional liquidity ratios should not be used solely for measuring liquidity since a company can have serious cash flow problems with positive liquidity ratios and increasing profits. Liquidity ratios developed using the statement of cash flows provide additional information or sometimes better insight on the financial strength or weakness of a company.

Suggested Citation

  • Carl B. McGowan & N. M. Baki Billah & Noor Azuddin Jakob, 2015. "Liquidity Analysis of Selected Public-Listed Companies in Malaysia," Issues in Economics and Business, Macrothink Institute, vol. 1(1), pages 1-20, June.
    • Handle: RePEc:mth:ieb888:v:1:y:2015:i:1:p:1-20
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    References listed on IDEAS

    as
    1. Stepanyan Armen, 2013. "Performance Assessment Of Major U.S. Airlines Via Cash Flow Ratios," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 398-408, December.
    2. repec:eme:mfppss:v:39:y:2013:i:7:p:667-676 is not listed on IDEAS
    3. Ali, A, 1994. "The Incremental Information-Content Of Earnings, Working Capital From Operations, And Cash Flows," Journal of Accounting Research, Wiley Blackwell, vol. 32(1), pages 61-74.
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