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Relevancy of cash flow in firm financial management

Author

Listed:
  • Glenn A. Helmers

    (Professor of Agricultural Economics, University of Nebraska)

  • Myles J. Watts

    (Associate Professor of Agricultural Economics, Montana State University)

  • Joseph Atwood

    (Research Technologist, Department of Agricultural Economics, University of Nebraska)

Abstract

The inadequacies of assessing business performance and credit worthiness by short run cash flow under conditions of inflation are stressed in this article. Because of the economic nature of traditional loan amortization, short-run cash flow cannot be relied on in gauging: (1) true business performance and (2) long-run repayment capacity. In addition, standard financial performance ratios using nominal flows are shown to be inadequate under inflationary conditions. This article stresses that business performance and credit worthiness analysis should be based on a real monetary basis. An example is provided to demonstrate the necessary modifications of nominal business flows to place the financial analysis on a real basis.

Suggested Citation

  • Glenn A. Helmers & Myles J. Watts & Joseph Atwood, 1985. "Relevancy of cash flow in firm financial management," Agribusiness, John Wiley & Sons, Ltd., vol. 1(4), pages 311-331.
    • Handle: RePEc:wly:agribz:v:1:y:1985:i:4:p:311-331
    DOI: 10.1002/1520-6297(198524)1:4<311::AID-AGR2720010408>3.0.CO;2-3
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    References listed on IDEAS

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    1. Robison, Lindon J. & Brake, John R., 1980. "Inflation, Cash Flows, And Growth: Some Implications For The Farm Firm," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 12(2), pages 1-7, December.
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    Cited by:

    1. Helmers, Glenn A. & Watts, Myles J. & Smith, Vincent H. & Atwood, Joseph, 1990. "The Impact Of Income Taxes On Resource Allocation And Structure Of Agriculture," 1990 Conference, January 6-9, Albuquerque, New Mexico 260181, Regional Research Committe NC-181: Determinants of Farm Size and Structure.

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