IMPACT OF CASHFLOW POLICY TO AN ORGANIZATIONAL SUCCESS
ABSTRACT
This study was carried out with the aim of appraising the impact of cashflow policy to an organizational success. In order to actualize the objectives of the study, various literature and theoretical issues were discussed. The instrument used for the purpose of this research was gathered through primary source. The mass of information generated from the questionnaires was summarized in form of table and analyzed using simple percentage. The researcher administered one hundred (100) questionnaires to respondents, out of which ninety-five (95) were retrieved for the purpose of presenting and analyzing responses to issues raise in the questionnaires. The data collected was analyzed using Z-test statistical tool. The findings from analysis revealed among other things that there is a relationship between cashflow and return on assets.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
Background to the Study                         
Statement of the Research Problem                
Objectives of the Study                         
Research Hypotheses                            
Scope of the Study                             
Significance of the Study                     
Limitation of the Study                         
References                                
CHAPTER TWO: LITERATURE REVIEW
Introduction                        
Importance of Cash Flow Ratios                
Use of Cash Flow Ratios as a Predictor to Failing Business    
Accounting for and Reporting Cash Flows                
Financial Statements Information and the Role of
Cash Flow Statements                        
Cash Flow Classification                        
Sustainable Cash Flows                            
Cash Flow and Equity Investors                
Cash Flow and Lenders                            
Importance of Cash Flows in Predicting the Performance
of a Firm                                    
Assessment of the Application of Operating Cash Flows by
Creditors                                    
The Functions of Cash Flow as a Result of Operations    
Corporate governance Vs. The Valuation and Performance
of a Firm                                    
The Performance and Valuation of a Firm With its
Corporate Governance                            
Drawbacks of A Cash Flow Analysis                    
References                                    
CHAPTER THREE: RESEARCH METHODOLOGY
Introduction                             
Research Design                             
Population of the Study                        
The Sample Size                                 
Data Collection Method                         
The Research Instrument                     
Data Analysis Method                         
References                         
CHAPTER FOUR: DATA ANALYSIS AND INTERPRETATION
4.1    Introduction                            
4.2    Descriptive Statistics                             
4.3    Test of Hypothesis                         
    CHAPTER FIVE:    SUMMARY OF FINDINGS, RECOMMENDATION AND CONCLUSION
5.1    Introduction                            
5.2    Summary of Findings                        
5.3    Recommendations                        
5.4    Conclusion                                
    Bibliography                             
Appendix                                 
CHAPTER ONE
INTRODUCTION
BACKGROUND TO THE STUDY
Cash flow information assists financial statement users in obtaining the relevant information concerning the use and source of virtually the entire financial resources over a given time period (Ross, Westerfield, Jordan, (2007). Specifically, the kind of information that the cash flow statement contains include details of operating, investing, and financial activities (Macve, 1997).
Financial investment ratios have proved vital for purposes of financial analysis over several decades ago, with the effect that the traditional ratio analysis techniques have become quite well established in literature. Traditionally, financial analysis, for a long time, depended on accounting performance via profitability measures such as return on assets and net sales to income, among others. These forms of ratios, however, are affected by the fundamental drawbacks that are characteristics of ‘accrual based accounting’ (Albrecht, 2003).
Modern finance theory argues that the value of the firm depends on its stream of future cash flows. However, earnings are widely used by investors and creditors as a summary measure of firm performance, as well as in executive compensation contract and in debt covenant agreements.
The primary appeal of earnings over cash flows is that they mitigate timing problems in revenue recognition and in matching revenues with appropriate costs in time. Cash flows are considered a noisier measure of firm performance than earnings because of timing and matching problems and accrual components of earnings is incrementally important in measuring firm performance. To the extent that firm performance determines dividend changes as in Lintner’s model, both cash flows and aggregate accruals should be significantly associated with dividend changes (Charitou and Vafeas, 1998).
However, while cash flows and accruals are important in explaining dividend changes, two plausible reasons exist to expect cash flows to be significantly more important than accruals. The first pertinent issue is that accruals are recognized partly at the discretion of the managers. Managers have incentives to manipulate accruals to their advantage because earnings are often used as a performance criterion in compensation contracts where managers have personal interests (Healy, 1985, Charitou and Vafeas, 1998). Therefore, manipulated accruals may be less important than cash flows in explaining dividend changes. Nevertheless, recent studies document mixed evidence as to the extent of accruals manipulation by managers (Dechow, 1994; Dechow et al., 1995; Gaver and Gaver, 1993).
Secondly, it appears that pay-out policy is dependent on cash availability. An organization’s decision to reduce, increase or maintain dividend partly reflects its liquidity position, therefore operating cash flow should reflect firm liquidity for cash flow to be a significant determinant of dividend changes, given earnings.
STATEMENT OF THE RESEARCH PROBLEM
The predictive value as it impacts on the cash flows of the operations of a firm is an area that has been extensively investigated, when compared to the information that is contained in the earnings of a firm (Neiil, 1991). These studies that have been undertaken have amassed a rich body of knowledge, with the result that quite a number of reliable research findings have come up. When the components of a firm’s earnings are viewed as being highly transitory, the confirmation that may be found from the operating cash flow of such a firm seeks to give a strong signal as regards the future performance of a firm (Chang and Rhee 1996). For example, at a time when the earnings of a company are recorded as being negative, they are also by extension, highly transitory. Therefore, users of the financial statement require placing a lot of emphasis on the cash flow operations when they wish to undertake analysis of a firm. In the same way, at a time when a firm has been plagued by a financial distress, it has emerged that operating cash flows have proved to be better predictors of whether or not a firm shall remain solvent, in the years to come
(Catanach 2000). It is important, however, to note that the operating cash flows of a firm do not under any circumstances seek to dominate the earnings of a firm, as a way of forecasting its future performance.
In the light of this, the following research questions are raised:
Is there significant relationship between cashflow and firm performance?
Is there significant relationship between cashflow and market value of firm?
Is there significant relationship between cashflow and return on assets?
OBJECTIVES OF THE STUDY
The main objective of this study is to examine the impact of cashflow in an organization success.
The specific objectives are to:
determine the relationship between cashflow and firm performance.
ascertain the relationship between cashflow and market value of firm.
examine the relationship between cashflow and return on assets.
RESEARCH HYPOTHESES
The following hypotheses will be tested in the course of this study.
Hypothesis I
Ho:    There is no significant relationship between cashflow and firm performance.
H1:    There is a significant relationship between cashflow and firm performance.
Hypothesis II
Ho:    There is no significant relationship between cashflow and market value of firm.
H1:    There is a significant relationship between cashflow and market value of firm.
Hypothesis III
Ho:    There is no relationship between cashflow and return on assets.
H1:    There is a relationship between cashflow and return on assets
SCOPE OF THE STUDY
The research study focuses on the impact cashflow on an organization success. The population of the study is the entire quoted companies in the Nigeria Stock Exchange. The sample size will be restricted to some selected companies quoted in the Nigeria Stock Exchange for the periods 2007 to 2010. Geographically, the study will be conducted in Benin City, Edo State.
SIGNIFICANCE OF THE STUDY
It is expected that this study would consolidate existing literature on the issues surrounding the relationship between cashflow and organization success. The study would also facilitate the examination of the effects of cashflow and organization success and thus boosting the empirical evidence from Nigeria. Furthermore, given the empirical nature of the study, the outcome of this study would aid policy makers and regulatory bodies in economic modeling and policy simulation with respect to the selected variables examined in the study.
The result of the study would be of benefits to investment analysts, investors and corporations in examining the effectiveness of cashflow and organization success.  It will also be useful in stimulating public discourse given the dearth of empirical researches in this area from emerging economies like Nigeria.
Finally, it would also add to the available literature on the area of study while also providing a platform for other researchers who may want to further this study.   
LIMITATION OF THE STUDY
1.    Smallness of sample size: It is interesting to emphasize that the findings of this empirical research are not to be generalize for all industry, since our limited to a number of companies.
The inability to obtain a completely random sample.
Imprecise measurement of variables.
Inappropriate test statistic.
 REFERENCES
Albrecht, W. S. (2003) Fraud Examination Mason, Ohio, Thomson and South- Western
Chang, R.P. and S.G. Rhee (1996), The Impact of  Personal Taxes on Corporate Dividend Policy and Capital Structure Decisions, Financial Management, Summer, 21–31.
Charitou, A. and N. Vafeas (1998), The Association between Operating Cash Flows and Dividend Changes: An Empirical Investigation, Journal of Business Finance and Accounting, 25(1 and 2): 225–48.
Dechow, P. (1994), Accounting Earnings and Cash Flows as Measures of Firm Performance: The Role of Accounting Accruals, Journal of Accounting Economics, 18:3–42.
Dechow, P., R. Sloan and A. Sweeny (1995), Detecting Earnings Management, Accounting Review, 70:193–226.
Gaver, J. and K. Gaver (1993), Additional Evidence on the Association between Investment Opportunity Set and Corporate Financing, Dividend, and Compensation Policies, Journal of Accounting and Economics, 16:185–209.