Empirical review of the relationship between performance and cash flows - Case of Albania

• Author: Juna Dafa - Ingrid Shuli - Xheni Xhaferaj
• Position: Faculty of Economy, University of Tirana, Albania - Faculty of Economy, University of Tirana, Albania - Ernst&Young - Albania
• Pages: 7-15

7

Balkan Journal of Interdisciplinary Research

IIPCCL Publishing, Graz-Austria

ISSN 2410-759X

Acces online at www.iipccl.org

Vol. 6 No.2

September, 2020

Empırıcal revıew of the relatıonshıp between performance and cash fl ows –

Case of Albanıa

Ph.D. (C) Juna Dafa

Faculty of Economy, University of Tirana, Albania

Prof. Dr. Ingrid Shuli

Faculty of Economy, University of Tirana, Albania

MSc. Xheni Xhaferaj

Ernst&Young - Albania

Abstract

The accurate evaluation of the company’s performance has a greater value for investors,

shareholders, and creditors but also for all users of accounting information. Profi t is an

indicator of an entity's performance. Cash fl ows represent the liquidity of the company. This

study aimed to investigate empirically the relationship between Net Profi t and Cash Flows,

for 45 companies that adopt IFRSs in Albania. The data were obtained manually from the

published audited fi nancial statements for years 2017 and 2018. The relationship between Net

profi t and CFO, CFI, and CFF is analyzed through the regression model.Net income is the

dependent variable,as a measure of the company’s performance, while CFO, CFI, and CFF

are independent variables. This study revealed that there is a positive signifi cant relationship

between net income and CFO, There is a positive, but not statistically signifi cant relationship

between Net income and CFI.

Keywords: Cash fl ow from operations, Cash fl ow from investments, Cash fl ow from fi nancing

activities, fi nancial performance, cash fl ow statement.

Jel code: M41

Introduction

The accurate evaluation of the company’s performance is of great importance not

only to investors, shareholders, and creditors but also to all other users of accounting

information. Company’s performance is infl uenced by many factors such as

investment, fi nancing, and operating policies.

The fact that a company has a positive performance does not mean that it has

su cient liquidity. Profi t, as an integral part of the performance indicator, is the

object of numerous management manipulations. This is aimed at a racting potential

investors, retaining existing ones, convincing creditors that liabilities to them will be

repaid on time etc. Profi t manipulation is generally accomplished by the use of various

accounting policies during the preparation of the fi nancial statements. Accountants

can manipulate profi ts through accrued revenues, bad debt recognition, provision

recognition, etc., i.e mainly through accrual accounting.