Effect of cash flow and liquidity on financial stability of listed firms in Nigeria

Abstract

The aim of this paper is to examine the impact of cash flow and liquidity on firms’ financial status in Nigeria, especially the Depbt to Equity (DE or DER). This paper then uses the panel least square technique to estimate the regression model which gives insights on what factors influence the DER of the sampled companies. The intercept was set a priori at a positive value for DER and similarly for OCFR and ICFR, which display inverse relationships. Of these, the Net Cash Flow Ratio (NCFR) is clearly the most significant and positively related factor reinforcing the value of effective sales of net cash flows that enhance higher DERs. Also, the negative and significant coefficient estimate of Firm Size (FSZ) underlines the implications of this study that senior debt structures for firm size. Based on these findings, the following implications address Nigerian listed firms Current recommendations are as follows: Namely there is need to more effectively manage operating cash flow and investing cash flow in order to best manage debt to equity ratios. Therefore, when deploying control levers to positively influence the firm; the companies that have acknowledged the Firm Size (FSZ) as one of the major influential factors are advised to balance the debt structure of the firm. For this reason, it is important to pay attention to the Net Cash Flow Ratio (NCFR) and the focus to achieve positive net cash flows as a crucial aspect to sustaining a sound financial status.