Cash flow pattern for predicting bankruptcy

This study aims to analyze whether cash flow patterns can be a predictor of bankruptcy. We conducted panel data analysis on Indonesian companies that had undergone forced delisting from the Indonesia Stock Exchange (IDX) during the period 2007-2017. We found that there are different cash flow patterns between financially healthy companies and financially distressed companies. The cash flow patterns derived from positive and negative signs of cash flow components which consist of financing, investing and operating activities. Some patterns of cash flow can be predictors of financial distress. The results found that companies are more likely to experience financial distress situation when the company generates negative cash inflow from daily operation activities, although they can generate cash from financing and investing activities.