CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

The provision of a strong relationship between cash flow accounting and firm

performance structure has been of important interest to academia’s, professional

accounting bodies, regulators, Government and other users such as (businessmen,

politicians, labor leaders) for example, Grandel, 2000: Titnan and Ali, 2008. The

perspective about cash flow accounting is reinforced by the fact that accounting is

a stewardship process that is historically shaped by economic and political forces

(watts, 1978; watts and zimerman, 1986: Herbert, et al. 2013) that the mode of

financial reporting plays a key role in firm performance and ultimately in

economic development nationally and globally is a prima-facie indication of its

impact in ensuring a strong investor confidence which is vital to the optimal

functioning of financial markets and, consequently to economic development

(Herbert, et al. 2013).

There is much less agreement on what the attributes of the cash flow are and how it

has evolved to take on its current configuration as a central feature of the modern

firm and the economy. It can be seen that some industries are more cash intensive

than others, it is an acknowledge fact that no business can thrive in the Long-run

1
without developing positive cash-flow for its owners. Generating a positive cash-

flow precisely implies that the firms long-term cash inflows exceed its long term

cash outflows.

Cash flow accounting (CFA) is the accounting process of tracking a firm’s cash

flow by monitoring the movement of cash inflows and outflows of the firm. Cash

flow accounting is different from cash basis accounting which is the direct

opposite of accrual accounting. The most suitable method of accounting under the

Generally Acceptable Principles (GAAP). Every Organization measures its cash

flow to access how successful and liquid the business has been.

Any assessment of the partition between cash flow earnings must start by

differentiating between profits and cash flow that is the business being profitable

and having a positive cash flow transaction. In other words, that a business is

making a profit does not imply that its cash is managed efficiently and vice versa.

In effect a strong positive cash flow does not guarantee or imply a bright view for

its current and potential earnings because cash flow can be positive and probably

negative. Rational investors prefer to analyze both income statement and cash flow

statement to make proper investing decisions. Put differently if a company income

statement provides income earning of N5 billion does not imply that it actually has

N5 billions of cash equivalent in the bank because financial statements are based

2
on accrual accounting, which takes into account, non-cash items, Accrual

accounting offers the window to best reflect the financial health of a company.

A company financial statement can be decomposing into a trichotomy of

interrelated important parts namely: the balance sheet, the income statement (or

profit and loss account), and the cash flow statement. The balance sheet gives a

snapshot of the firms unallocated resources (assets and liabilities) at a particular

point in time, the income statement provides a periodic panorama of the forms

profits or loss. The cash flow statement acts as a corporate cheque book that

reconciles the other two statements. The cash flow statement records the

company’s cash transactions (the inflows and outflows) during the given period.

While the CFS shows if all revenues have been translated into cash during the

period, however it does not necessarily show all accrued company expenses have

to be paid right away.

Cash flow is measured over a defined period of time usually monthly, quarterly or

yearly, and it represents the change in the cash balance over the time frame

defined. A firm’s total net cash flow can come from three major sources which are:

1. Financial Cash Flow: Cash that is received from the sale or issue of equity and

debt

3
2. Investment Cash Flow: Cash received or spent in the everyday or routine

activities of the company.

1.2 Statement of the Problem

Considerable research on the economic effects of cash flow accounting in

developed countries has shown little or no systematic attempt at examining the

impact of cash flow accounting on profitability, liquidity and firm turnover in the

developing country, Nigeria in particular.

There appears to be some inconsistency in the presentation of information in

financial statements. Efforts at estimating the methods (direct or indirect) for

measuring cash flow accounting as stipulated by different accounting standards

(IFRS and GAAP) and different researchers have met with conflicting results.

There is a problem of timeliness of the cash flow accounting (cotter 2002). Its

Timeliness depends on the timeliness of the balance sheet and income statement,

making cash flow information less relevant for the discovery of the liquidity and

profitability problems of a firm Metka (2008) Outlined that such a problem is not a

result of cash flows recognition during the period but is tied to the historicity of the

balance sheet and income statement.

4
The absence of audited cash flow accounting may lead to negative consequences in

financial markets it may weaken the ability of different shareholders to assess the

future and continuity of the entity. In particular, present and potential investors will

be less able to predict future cash flows and future share prices, while leaders will

be less able to assess credit risk and predict future repayment of loans. (promise &

precious, 2009; Elliot & Elliot 2009 ; Spiceland, Sepe & Nelson, 2012). Moreover,

it is argued, the absence of auditing the cash flow accounting leaves wide-open

doors to exercise judgement, which may in turn result in severe accounting

manipulations in managerial contractual settings (watts & Simmerman, 2006). To

the detriment of users of financial statements who base their financial/investment

decisions on these statements. This research therefore, provides empirical evidence

on the relationship between cash flow accounting and firm financial performance.

Several factors may jointly affect choice of accounting policy or method of firm

performance and therefore induce spurious correlation between them (see Tegba &

Herbert, 2013).

5
 CONCEPTUAL FRAMEWORK

CASH FLOW FINANCIAL

ACCOUNTING PERFORMANCE

OPERATING TURNOVER
ACTIVITIES

FINANCING ACTIVITIES WORKING CAPITAL

1.3 Purpose of the Study

The purpose of this study is to better understand the role of CFA in producing

earnings as a key output of the accounting process. The study also examines how

CFA improve earnings ability to reflect the firm performance. Under the economic

consequences percept, this study purposes to empirically investigate the influence

of cash flow accounting on financial performance of quoted Insurance companies

in Nigeria. In specific terms, the objective of this study is to:

6
1. To identify the influence of operating activities on turnover of quoted insurance

companies in Nigeria.

2. Examine the extent to which Operating activities mediates on working capital

of quoted insurance companies in Nigeria.

3. To examine the relationship between financial activities and working capital of

quoted insurance companies in Nigeria.

4. To identify the relationship between financial activities and turnover of quoted

insurance companies in Nigeria.

1.4 Research Questions

This study tries to provide answers to the following research questions. (RQ)

RQ1: To what extent does operating activities influence the turnover of quoted

insurance companies in Nigeria?

RQ2: To what extent can operating activities influence working capital.

RQ3: To what extent can financial activities relate with working capital of quoted

insurance companies.

RQ4: To what extent can financial activities relate with turnover of quoted

insurance companies in Nigeria.

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1.5 Research Hypothesis

The above research questions gave rise to a number of hypothesis stated in null

form and related to each research question.

Ho1 Operating activities do not have significant influence on Turnover of

quoted Insurance companies in Nigeria.

Ho2 There is no relationship between Operating activities and working capital

of quoted Insurance companies in Nigeria.

Ho3 Financial activities do not have significant influence on turnover of quoted

Insurance companies in Nigeria.

H04 There is no significant relationship between financial activities and working

capital of quoted Insurance companies in Nigeria.

1.6 Significance of the Study

The significance of this study rest on the ability of the study to be of very

informative benefits to companies as they weigh the economic effects of

CFA adoption as part of their corporate governance architecture. The study could

also be beneficial in providing corporate management, useful insight too as they

seek to take advantage of useful accounting methods of increasing their

productivity, profitability, investment and business growth.

8
The findings of this study will also be beneficial to scholars that will like to get

more knowledge and insights about the economic effects of CFA and how they

affect firm performance.

1.7 Scope of the Study

This study is concerned with the economic effects of CFA. The assessment is made

with respect to Insurance Firm performance, that is by examining the relationship

between cash flow accounting and firm performance.

The content scope of this study is the economic consequence of cash flow

accounting on firm performance in Nigeria. The geographical Scope of this study

is Nigeria Corporate environment.

1.8 Limitations of the Study

The Limitations of this study are resident mainly in the measurement of the

research data where a research involves both quantitative and qualitative data as is

often the case in most behavioral science studies, the calibration of the non-

quantitative data can pose a limitation

Finally, the best of my ability in terms of time and money as constraints can be put

into consideration. The high cost of transportation at this present time actually

prevented large coverage moreover, since the researcher is combining both

9
normally academic work with the project this delays early start of the study thereby

emphasizing the need of more time.

1.9 Organization of the Study

This study is divided into five chapters; chapter one contains the introductory

aspect of the study. Chapter two review three relevant interaction in the area of

cash flow accounting and financial performance of quoted insurance companies to

draw important facts hutting on the study. Chapter three contains the research

design, the sampling procedure employed and the questionnaires design as well as

data analytical techniques used for the study.

Conclusively, in chapter five we discussed the study results extensively and also

present the conclusion and recommendation from the work.

1.10 Definition of Terms

ACCRUAL BASIS: A system of accounting based on the accrual principal, under

which revenue is recognized (recorded) when earned, and expenses are recognized

when incurred.

Totals of revenues and expenses are shown in the financial statements (prepared at

the end of an accounting period), whether or not cash was received or paid out in

that period. Accruals basis accounting conforms to the provisions of GAAP in

preparing financial statements for external users, and is employed by most

10
companies except the very small ones (which use cash basis accounting). Also

called accrual accounting. See also modified accrual basis accounting.

CASH BASIS: Cash basis refers to a major accounting method that recognizes

revenues and expenses at the time physical cash is actually received or paid out.

This contrasts to the other major accounting method, accrual accounting, which

recognizes income in a company's books at the time the revenue is earned, but not

necessarily received, and records expenses when liabilities are incurred, but not

necessarily paid.

CASH FLOW FORECAST: A cash flow forecast is a plan that shows how much

money a business expects to receive in, and pay out, over a given period of time.

CASH FLOW STATEMENT: In financial accounting, a cash flow statement,

also known as statement of cash flows, is a financial statement that shows how

changes in balance sheet accounts and income affect cash and cash equivalents,

and breaks the analysis down to operating, investing and financing activities.

Essentially, the cash flow statement is concerned with the flow of cash in and out

of the business. The statement captures both the current operating results and the

accompanying changes in the balance sheet. As an analytical tool, the statement of

cash flows is useful in determining the short-term viability of a company,

11
particularly its ability to pay bills. International Accounting Standard 7 (IAS 7), is

the International Accounting Standard that deals with cash flow statements.

EARNINGS: Revenues minus cost of sales, operating expenses, and taxes, over a

given period of time. Earnings are the reason corporations exist, and are often the

single most important determinant of a stock's price. Earnings are important to

investors because they give an indication of the company's expected future

dividends and its potential for growth and capital appreciation

EARNINGS PER SHARE: Earnings per share (EPS) is the portion of a

company’s profit that is allocated to each outstanding share of common stock,

serving as an indicator of the company’s profitability. It is often considered to be

one of the most important variables in determining a stock’s value, and it

comprises the “E” part of the P/E (price-earnings) valuation ratio. EPS is

calculated as:

EPS = net income ÷ average outstanding common shares

FINANCIAL STATEMENT: Financial statements are reports prepared by a

company's management to present the financial performance and position at a point

in time. A general-purpose set of financial statements usually includes a balance

sheet, income statements, statement of owner's equity, and statement of cash flows.

These statements are prepared to give users outside of the company, like investors

12
and creditors, more information about the company's financial positions. Publicly

traded companies are also required to present these statements along with others to

regulatory agencies in a timely manner.

FINANCIAL PERFORMANCE: Financial performance is a subjective measure

of how well a firm can use assets from its primary mode of business and generate

revenues. This term is also used as a general measure of a firm's overall financial

health over a given period of time, and can be used to compare similar firms across

the same industry or to compare industries or sectors in aggregation.

LISTED COMPANIES: Company whose shares are traded on an official stock

exchange. It must adhere to the listing requirements of that exchange, which may

include how many shares are listed and a minimum earnings level.

NET WORK CAPITAL: Net working capital is a liquidity calculation that

measures a company’s ability to pay off its current liabilities with current assets.

This measurement is important to management, vendors, and general creditors

because it shows the firm’s short-term liquidity as well as management’s ability to

use its assets efficiently.

OPERATING PROFIT: Operating profit is the profitability of the business,

before taking into account interest and taxes. To determine operating profit,

operating expenses are subtracted from gross profit. Operating profit is a key

13
number for managers to watch as it reflects the revenue and expenses that they can

control.

PROFIT BEFORE TAX: A calculation of the company's income versus

expenses, with the exclusion of tax payments.

TURNOVER: Turnover is an accounting term that calculates how quickly a

business collects cash from accounts receivable or how fast the company sells its

inventory. In the investment industry, turnover represents the percentage of a

portfolio that is sold in a particular month or year. A quick turnover rate generates

more commissions for trades placed by a broker.

WORKING CAPITAL: Working capital is the amount of current assets minus

the amount of current liabilities as of specific date. These amounts are obtained

from your company's balance sheet. Even with a significant amount of working

capital, a company can experience a cash shortage if its current assets are not

turning to cash.

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 CHAPTER TWO

REVIEW OF RELATED LITERATURE

This chapter will review and discuss the prior literature on cash flow accounting

and firm financial performance. Cash flow accounting variables have been grouped

into four categories. Operating activities, Financing activities, Investing activities.

Each category will be discussed in turn and the chapter will conclude with an

overall summary of the literature review.

2.1 Theoretical Foundation of Cash Flow Accounting

An appropriate starting point in discussing the economic consequence of cash flow

accounting is to cost the framework in terms of synthesis of extant theories. The

putatively provides a logical sequence to previous research efforts. Thereby

providing a suitable foundation for the development of a systematic analytical

framework for present study.

2.1.1 Agency Theory

The agency problem was originally raised by Berle & means (1932-2000: Angel et

al, 2000: Singh & Davidson, 2003: Lang, & Walking, 2003: GUl & Judy, 2003:

Chung et al 2005: Chung et al 2005: Lehn & Poulson, 2005) argued that agency

costs might be incurred in the separation of ownership and control due to

15
inconsistent interests of management and stock holders. Jensen & Mecking (2006)

suggested that the incomplete contractual relationship between the principal

(stockholders) and the agent (management) might cause the agency problem. In

general, the agency problem caused by management would cause a loss in

stockholders’ wealth in the following ways: first, management, from the aspect of

self-interest motive, would increase perquisite consumption and striking behavior,

which in turn led to an increase in agency costs, Second, management might not

choose the highest NPU investment project, but the one that maximized his own

self-interest, which would expose stockholders to unnecessary investment risk.

Therefore, management’s decision might cause the firms less in value because the

best project was not chosen.

It was obvious that the agency problem caused by management would burden the

stockholders’ loss, yet it was not clear how the agency costs were defined as well

as measured. Early literature, such as Jensen and meckling (2005) and Jensen

(2006) argued that there were at least three forms of agency costs: monitoring cost

of managements actions, bonding cost of restrictive covenants, the residual loss

due to suboptimal managements decisions. Jensen (2006) linked the agency

problem, with free cash flows such that management might above free cash flows

at their authority when investment opportunities were not readily available to the

firm. Therefore. Free cashflow to management were agency costs to stakeholders.

16
To tackle the agency problem, two contrasted approaches, the refraining approach

and the encouraging approach were suggested. Kester (1998), Gul & Tsui (2008)

took the refraining approach and argued that an increase in financial leverage

would sufficiently reduce the agency costs since management is subjective to legal

bonding of repaying debt and interest, which in effect might decrease the abuse of

free cash flow. In addition, Slecfer & Vishing (2001). Bethel & Licbeskial (2003)

proposed that corporate takeover could discourage managements incentive to

perquisite consumption and striking behavior. Furthermore, Crutchley & Hensen

(2003) implied that the firm could attempt to distribute idle cash flows to

stockholders by stock repurchase or dividend payments to avoid the abuse of free

cash flows.

By contrast, Lehn & Paulson (2002), Fox & Marcus (2004)< Dial & Murphy

(2005) suggested that encouraging approach that a firm could change

managements action to be more in favour of stakeholders by increasing the shares

held by management. Although, abundant literature has reviewed the agency

theory, yet the measurement of agency costs was still not clearly defined, thus

depending on proxy variables, According to literature, there were seven proxy

variables. According to literature, there were seven proxy variables suggested to

measure agency costs. They are total asset turnover(Angel, Cole & Lin, 2000):

(Singh and Davidson, 2003): administrative expense to sales ratio, (Singh and

17
Paulson, (2003), operating expense to sales ratio (Singh & Davidson, 2003)

earnings volatility, advertising R & D expenses ratio, floating cost (Crutchley &

Hansen (2009), and free cash flow (Chug, Firth & Kin, 2005).

2.1.2 Accrual Accounting Theory

The accrual accounting basis is a basic accounting assumption dealing with the

accounting process of recognizing the effects of financial transactions in the period

in which events occur, rather than focusing only on cash receipts or payments

(IASC, 2000). The transactions are recorded and reported in financial statements of

the period they occur whether or not cash has been, received or paid (Riahi –

Belkaoui & Jones, 2002). As a result, accounting information reported in financial

statements consisits of both the effect of credit and cash transactions.

A main reason for the development of accrual accounting systems is the mitigation

of timing and matching problems interest in cash flows, in order to measure a firms

performance (Cheng, Liu & Schaefer, 1997: Dechow, 2004). A demand for

information used for evaluating a firms performance arises from measuring and

rewarding management. Additionally, the need for accrual accounting system is

derived from the industrial revolution which precipitated growth causing the

complexity of firms transactions (Sharma & DS, 2001). Although the success of a

firm can be measured by its ability to generate cash, reporting and cash receipts

18
and payments has timing and matching problems that cause cash flows to be a

noisy measure of firm performance. Since under the continuing entity assumption,

companies are assumed to operate without discontinuing, in order to measure their

performance the companies need to slice time into small segments and report their

progress for each specific period or recording. Companies which record only cash

transactions would have problems when the transaction involves more than one

period of recording. This is because companies usually deal with credit

transactions. Earnings are measured by an excess of revenue over expenses in each

period of recording. Accrual accounting records the purchase of assets or resources

used to operate a business and the provision of goods and services made by a

company during a period which does not match the cash receipts and payments.

By recognizing revenues and related increases in liabilities, for amounts expected

to be received or paid, usually in cash in the future.

2.1.3 Free Cash Flow Theory

Jensen & Michael (1996) posits that in the free cash flow theory, managers do not

behave in a manner consistent with profit maximization. Managers instead use

increased cash flow to pursue objectives that have little to do with increasing

profits and a great deal to do with making the managers lives better (such as

increasing the size of their company), or easier. The agency cost explanation

19
introduced by Jensen, Clifford & Smith (1995), suggests that monitoring difficulty

creates the potential for management to spend internally generated cash flow on

projects that are beneficial from a management perspective but costly from a

shareholder perspective.

It holds that investments reduce free cash flow available to pursue their personal

opportunities consumption and suboptimal investments. Donaldson (1997), argues

that managers of firms with free cash flows (cash flows in excess of profitable

investment opportunities) tend to waste cash by taking excessive perquisites or by

11 making unprofitable investments. Managers are more likely to use the free cash

flows to make investments that will be incremental to the size of the firm (or to pay

themselves excessive perks), than to pay dividends to the shareholders or

repurchase outstanding shares. A testable implication of the agency hypothesis is

that firms that have free cash flows are likely to grow beyond the optimal point of

shareholder wealth maximization. Shareholders of such firms will benefit from any

managerial decision that prevents these wasteful expenditures. Share repurchases

prevent such waste by using up excess cash flows (Jensen & Smith, 1995).

The fact that capital markets punish dividend cuts with large stock price reductions

is consistent with the agency costs of free cash flow. Debt creation, without

retention of the proceeds of the issue, enables managers to effectively bond their

promise to pay out future cash flows. Thus, debt can be an effective substitute for

20
dividends, something not generally recognized in the corporate finance literature.

By issuing debt in exchange for stock, managers are bonding their promise to pay

out future cash flows in a way that cannot be accomplished by simple dividend

increases. In doing so, they give shareholder recipients of the debt the right to take

the firm into bankruptcy court if they do not maintain their promise to make the

interest and principal payments (Jensen & Michael,1996).

2.2 Cash Flow Accounting

The cash flow accounting in its current format is a relatively new addition to a

financial reporting package. It has only been part of Nigerias GAAP since the

introduction of statements standard accounting practice (SSAP) 10, statement of

cash flows, in 1994. Prior to that date Nigeria entities were required to prepare a

statement of changes in financial position under SSAP 10 (more commonly

referred to as a “ fund statement”) which provided some but not all, of the

information now presented by the cash flow statement. This situation is not that

dissimilar to other countries that operate in similar economic and political

conditions (e.g., the United States of America (US) the United Kingdom (UK) and

other westernized countries introducing some form of fund statement by early

1990’s.

Since the introduction of the statement of many GAAP, its usefulness to decision-

makers has received significant attention in the literature (Epstein, 2002, Jones et
21
al, 2005; Yap, 2006; Jones and Retnatuga, 2007; Jones et al, 2008 and Sharma and

Iselins, 2013). In addition, several key advantages of cash flow information over

traditional information found in the balance sheet and income statement have also

been well documented Sharma and Iselin, 2003), with the most frequently cited

relating to the greater level of information content for decision-makers and

increased reliability over traditional accrual- based accounts. The reasons

documented for the second of these advantages include such factors as, a general

lack of susceptibility to creative or aggressive accounting procedures, events and

transactions being recorded based on their true economic impact and not simply

their legal form and the clear establishment of representational and definitional

criteria.

Evidence that the meaning of accounting terms can influence decision makers’

Understanding of those terms has raised yet another potential concern for

preparers, auditors and users. This issue was considered by Griffiths (2006), Wires

(2006), who acknowledged the connections between changes in meaning, resulting

from subtle changes in the definition of key wording, and the possible impact on

the resulting decisions made by those different parties to the communication

process. The issue is believed to contribute to the overall reliability of financial

statements as it is not always clear that the changes were international.

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2.2.1 Classification of Cash Flow Accounting

According to GAAP (Generally Accepted Principles) requirements, the alteration

in the amount of cash between two accounting periods may be categorized into

three classes: cash used or provided by operating, investing and financing

activities. These three classes signify three very different uses and sources of cash.

2.2.1.1 Financing Activities

This is a term that is used in reference to cash accruing from equity, debt issue, and

payment of dividends, debt repayments and a repurchase of shares. The implication

here is that dividends, loans, and debt are often accounted for in the form of cash

from financing. Following a rise in capital, changes in cash emanating from

Financing are termed “cash in’ whilst following payments of dividends are termed

“cash out” (Bragg, 2002). As such, the action of a company issuing its bond to

members of the public increases its cash in. On the other hand, interest payment to

bondholders results in cash out of such a company.

2.2.1.2 Investing Activities

Investing cash flow is amongst the three cash flow elements that bears a direct

correlation with a given business entity. These are those cash flows often received

by a business out of general investments, or even following an acquisition.

According to Epstein et al (2007) there is a need to be mindful that investment cash

23
flows can also be used in reference to those cash flows that have hitherto been

expended or received. For example, a capital expenditure may be regarded as a

cash flow that has been expended through the purchase of a given tangible asset,

such as property or building. In addition, an investment cash flow could also be

used for purposes of purchasing a given form of investment, or even cash that has

been acquired as a benefit, following an investment sale. It could be that an

investment may have been sold, in which case the firm acquires the sales proceeds

in the form of revenue. This therefore should not be confused with loss or profit

which represents the deficit between the purchase price of an investment and its

selling price.

2.2.1.3 Operating Activities

Within the context of financial accounting, Operating cash flow is used in

reference to that flow of cash made available by core operations of a business

entity. Net cash flow from operating activities represent the net increase or

decrease in cash and cash equivalent resulting from operations shown in the

income statement in arriving at operating profit. In view of the fact that it adjusts

for receivable, depreciation and liabilities, operating cash flow may be seen as a

more accurate measure of how much a company has generated, In comparison with

24
the conventional profitability measures like net income (Fabozzi & Markowitz,

2006). For instance a business entity characterized by many fixed assets within its

books of account, such as machinery and equipment, are more likely to reduce net

income as a result of depreciation. Nevertheless seeing that depreciation is not a

cash expense, the business entity’s operating cash flow would therefore provide a

more accurate picture of the company’s current cash holdings than the artificially

low net income (Fabozzi & Markowitz, 2006).

Cash generated as a result of operating activities is basically a reflection of the

transactional effect of cash that helps to determine an entity’s net income, or cash

received from customers, following a service provision or sale of a product (Barry

et al, 2005). Payment of cash flows as a result of investing activities entails loans

processing and collection, in addition to equity investment, debt dispensing, plant,

property and equipment investment (Berry et al, 2005). As such, an inventory

purchased by, for example, a jeweler shall normally appear as an operating use of

cash on a cash flow statement.

A useful method to examine a statement of cash flow structure is to classify the

amounts of cash payable for investments purposes which should take into account

plant, property, equipment, as well as cash received following the sale of an

investment (Bragg, 2003). Any form of income that may be obtained from such

investments, for example, cash revenue minus cash invested in plant and property,
25
shall be incorporated in the computation of the operating cash flow. Even though

investments, sales usually yield losses and gains, nevertheless such losses and

gains do not get reported on a statement of cash flow operating section. Instead,

sales proceeds which include investment before recovery minus sales loss or plus a

gain, usually get reported in the statement of cash flows investing section.

Just like net income is usually taken as a source of earning to shareholders,

operating cash flow also gets measured from the point of view of a shareholder

(Bragg, 2002). What this means is that, net income is only determined following a

deduction of interest expenses but prior to the payments of dividends. In the same

way, operating cash flow shall be determined following payment of interests, prior

to dividend. The latter is of course considered to be a financial activity. Business

cash, as a result of the operating activities within a cash flow statement, indicates

the amount of cash in contrast with accrued operating profit that has been

generated by the operations of a business entity. Normally, net income happens to

be the most significant cash source, as a result of business operations.

2.3 Cash Flow Accounting Data

CFAD is the term used to denote a system of financial reporting which describes

performance of an entity in cash terms. It is based on a matching of periodic cash

inflows and cash outflows, free of credit transactions and arbitrary accounting

26
allocations. Inflows include a cash from trading operations and provides long-term

finance; and outflows include payments for replacement and growth investment,

taxation, interest, and distribution (Lee 1981, p. 63).

Historically, the cash flow Accounting has been operating since the beginning of

the 18th century. However, users of financial information did not support this

system until the early 1960s (Lee, 2003). At that time, financial information users

were concerned about the use of cash flow data for decision-making purposes as a

subtitle for income. Cash flow was represented by profit plus depreciation (Paton,

1963 & Drebin, 1964 cited in Lee, 2003)

2.3.1 Importance of Cash Flow Accounting

Lawson (2002) & Lee (2005) suggested that cash flow accounting may be helpful

to investor decision-making. The cash flow accounting concept advocated by

academics and researchers in the UK and USA has appeared to influence financial

reporting practice since the 1980’s (Lee, 2003; Staubus, 2009). In the USA, FASB

required a statement of cash flow to be included in companies financial reporting

instead of fund flow statements. Cash flow accounting can avoid uncertain

accounting allocations present in the accrual system, produce more objective

financial information and provide users with fundamental and critical financial

data (Lee, 2003), because cash flow accounting does not involve allocation and

27
matching problems, Payments and receipts are recorded when the transaction of

receipts or payments are made. As a result, it is expected that cash flow is less

vulnerable to manipulation than accrual information (Ali, 1994; Sharma & DS,

2001). For similar reasons, cash flow is seen as the superior instrument for

predictive purposes, particularly for predicting future cash flows (Charitou & Ketz,

2001; Lee, 2003).

2.4 Firm Financial Performance

Despite the foregoing, the empirical on firm financial performance is very sparse.

Company performance is very essential to management as it’s an outcome which

has been achieved by an individual or group of individual in organization related to

its authority and responsibility in achieving the goal legally, not against the law,

and conforming to the morale and ethic.

Firm Financial performance may be defined as the ability of an organization to

accomplish certain objectives. According to Fubara (2004) performance refers to a

number of a different aspect. To management, successful means achieving

company’s objectives, profit, growth, market share etc. satisfying customers

expectations – price, quality, quantity, time etc. and satisfying the needs of

workforce – good pay, satisfaction etc. although, performance criteria may differ

according to the type of product or service, generally it involves effective use of

28
resources to efficiently convert inputs into the required outputs at the right cost,

quality, time and space.

Firm financial performance is measured in relation to established organization

objectives. Management expert Ducker (1954), Nwachukwu (2005) has stated that

objectives should be established in at least areas of organizational performance.

Market standing innovations, productivity, physical and financial resources,

profitability, manager performance and responsibility, worker performance and

attitude and social responsibility.

2.5 Elements of Financial Performance

2.5.1 Profitability

The primary objective of corporate organizations are still financial, of which profit

maximizations is chief (KPMG, 2005; Damilola). This leading position of profit is

attended for many reasons including the fact that profit is the basis for evaluating

all the financial decisions of a firm and also the most appropriate measure of

corporate performance under competitive market conditions among others (Pandy

2006). However, the volume of profit a firm can generate is a function of several

factors, within and outside the control of the organization. Among these factors of

determinants of profits is the composition of assets and liabilities in the balance

sheet as well as the quality of decisions made in this respect.

29
A firm has several objectives and “profit maximization” is aid to be paramount

among these (Raheman & Nase, 2007). Because “profit maximization” as a

concept suffers some inherent limitations, some would rather substitute it with

“wealth maximization”. It is nevertheless true that profit is a tool for efficient

resource allocation because it is the most appropriate measure of corporate

performance under competitive market conditions (Pandy, 2008). This was further

suggested by Kpma working capital management survey of European companies

(2005), when they empirically found out that “the primary concerns of corporate

are still financial objectives, such as sales and profit.

Profitability is a key component of financial performance, for the purpose of this

study financial performance was defined in section 1.10 as relating more to the

profitability of a company than to the possible wider interpretation of financial

performance. Helfert (1991) describes profitability as the effectiveness with which

management has employed both the total assets and the net assets are recorded on

the balance sheet. The effectiveness is judged by relating net profit to the assets

utilized in generating the profit.

From the owners point of view (the shareholders in the case of a company)

profitability means the returns achieved through the efforts of management on the

funds invested by the owners (Helfert, 1991; Van Horne, 2002).

30
2.5.2 The Profit Zone

The definition of profit does not pose any difficulty, especially when viewed from

the accountant’s perspective, profit could be defined as the excess of total income

over total expenses during a given period of time. Total expenses in this definition

refer to revenue or recurrent expenses consumed in generating the incomes

(Ohaka), 2011 quoted Henry and Keer, 1979) argued accounting profit is defined

as revenues minus expenses. Revenue is increases in the assets of a business,

which result from sale of either stock in trade or the services that the business in

existence to provide. The expenses match with revenues in the determination of

accounting profit as those reductions in the value odf asset incurred in generating

the revenues, Pandy (2006) writing on profitability ratio stated that profit is the

difference between the total revenues and total expenses over a period of time.

Profit is the ultimate output of a company and it will have no future if it fails to

make sufficient profits.

Profitability is often times used as a basis for assessing a company’s going concern

ability. Corporate profitability is measured when comparisons of information

contained in the financial statements are made with profits earned using accounting

ratios. Tests of profitability focus on measuring the adequacy of income by

comparing it with one or more primary activities or factors that measured in the

financial statements. Several different test of profitability and liquidity are

31
commonly used: earnings per share, fixed asset turnover, return on sales, return on

equity, financial leverage percentage, price-earnings ratio, operating profit, profit

margin, dividend payout ratio, return on capital employed, profit before tax,

earnings yield, working capital etc. (Libby, et, al 2001).

2.6 Determinants of the Profitability

Profitability is represented by the ratio of earnings before tax to total assets, a

variable that reflects the firms' ability to generate earnings from its assets. The

variables that are used in an attempt to determine the firm's profitability include

size, leverage, sales growth, investment and current assets (Stern, 2002).

2.6.1 Size of the firm

Total assets and turnover, are the variable utilized in the present study following

Rajan and Zingales (1995), and are commonly used as a substitute for size. Larger

firms not only enjoy a higher turnover and therefore are able to generate higher

income, but 15 also have better access to capital markets (Titman and Wessels,

1988) and lower cost of borrowing (Ross, Western field & Jaffe, 2002).

2.6.2 Leverage

Leverage is another determinant of profitability; it can be measured by using

different financial ratios. Ross et al. (2002) define leverage as either the ratio of

total debt to total equity or the ratio of total debt to total assets, which is the

variable used in the present study. It is expected that leverage affects profitability

32
negatively since higher debt values require more resources by the firm in order to

repay the debt, reducing the funds available for investment.

2.6.3 Sales Growth

Sales in growth is a significant determinant of profitability, sales growth of the

firm is measured by the ability of the firm to achieve growth in sales, ceteris

paribus, providing it with additional income for the current period, facilitating also

its further expansion and is therefore expected to affect its profitability positively

(Sachs and Warner, 1995).

2.6.4 Investment

Physical capital investment is expected to affect profitability positively since it

expands production, aiming at improving sales, cash flow and profit‐generating

ability. Using data available in financial statements and assuming that the majority

of new investment is materialized through the increase of fixed assets, this variable

is calculated as the growth rate of gross fixed assets in two consecutive years

(Voulgaris, Doumpos and Zopounidis, 2000). 16

2.6.5 Current Assets

The inefficient management of current assets by a firm that is building up

excessive stock or receivables that signal difficulties in either selling its products

or collecting income from past sales has a negative impact on profitability and

therefore we expect a negative sign for this variable. (Rajan and Zingales, 1995).

33
2.6.6. Turnover/ Sales

Reporting turnover is mandatory to respect of companies listed on the Nigerian

Stock Exchange (NSE) for financial year ending on or after 30 June. (Richard,

2010). Under the Nigerian Accounting Standard Board (NASB). Turnover, the

main purpose of this standard is to set requirements for determining amount of

turnover to ensure that such amounts are comparable between companies and over

time and therefore enhance the usefulness of this performance indication to users

of accounts and consolidated accounts.

The Turnover ratio indicates the efficiency with which the capital employed is

related in the business (Uzoma, 2013). The Overall profitability of the business

depends on two factors. The rate of return on capital employed and the turnover,

i.e, the speed at which the capital employed in the business rotates. Higher the rate

of rotation, the greater will be the profitability.

The figures used for the calculation purpose is net sales but for the purpose of this

study net premium was used because of the nature of the companies being studied

(Insurance companies) which are basically the revenues a company earns. While

Turnover ratio are calculated as follows:

Turnover = sales / Average Assets.

34
2.7.8 Working Capital

Working capital has been defined as a margin (Damilola, 2007), buffer (Delo of,

2010) or a safety cushion for meeting obligations within the ordinary operating

cycle of the business, better still the current assets and current liabilities items

available for the day to day running of an organization (Gupta, 2012). The current

assets components of working capital “are assets which can be converted into cash

within an accounting year" and consist majority of cash, debtors (account

receivable or book debts), short term securities and stock (inventories). Current

Liabilities components are those claims of outsiders which are expected to mature

for payment within an accounting year and consists of creditors or account

payable, bills payable and outstanding expenses.

It is the administration of both current assets and current liabilities components that

is referred to as working capital (Utensil, 2004)

2.7 Empirical Studies

Ali, et al (2013), studies the association between various earnings and cash flow

measures of firm performance and stock returns in Iran. They used the simple and

multiple regressions to analyze the data for a period of nine consecutive years from

2003 to 2011. The study revealed that company’s performance and cash flow have

a significant negative relationship; furthermore, earning based measures are more

35
related to stock returns and depict the company performance better than cash flow

measures in some companies with higher accruals.

Thanh and Nguyen (2013) carried out a study on the effect of Banking

Relationship on firm performance in Vietnam. They used the multiple regression to

analyze the data, using a sample of 465 companies listed in Vietnam observed in

period 2007 to 2010. The study revealed that firm performance decreases as the

number of bank relationships increases. Additionally, the study also indicates that

cash flow has negative relationship with firms, return on equity, while assets have

negative association with return on assets.

Chikashi (2013) carried out an investigation of comprehensive income and firm

performance. The case of the electric appliances industry of the Tokyo Stock

Exchange. The researcher uses the data for the fiscal year of 2009 to 2011 and

employs the pooled regressions (Panel data regression analyses). The study

revealed that cash flow and firm performance have a significant negative

relationship. In addition, comprehensive incomes published by the firms were

superior to other earnings or cash flow variables in predicting their future stock

returns.

Zhou, et al (2012), examined the relationship between free cash flow and financial

performance evidence from the listed Real Estate Companies in China. They used

36
principal component analysis and regression analysis on the data from 2006 – 2011

of all listed real estate companies in China. The study revealed that the free cash

flow of a company is negatively liner –correlated to its financial performance too

much free cash flow will lead the financial performance to decline.

Adelegan (2003), carried out an empirical analysis of the relationship between cash

flow and divided changes in Nigeria. The researcher used the ordinary least

squares (OLS) method to analyze the data on a sample of 63 quoted firms in

Nigeria over a wider testing period from 1984 to 1997. The empirical results reveal

that the relationship between cash flow and firm performance is positively

significant. Additionally, the relationship between cash flows and dividend

changes depend substantially on the level of growth, capital structure choice, and

size of each firm and economic policy changes.

Brush, et al (2000), examines the free cash flow hypothesis for sales growth and

firm performance. They used the white and Durbin- Watson tests on the data that

covers the years 1988 to 1995. The results reveal that the firm performance and

flash flow have a significant positive relationship. But different governance

conditions affect sales growth and performance in different ways.

Miar (1995) examines the information content of cash flows financial ratios in

Tehran stock exchange. He used the ordinary Least Square (OLS) Method to

37
analyze the data for the years 1988 to 1994 of 480 listed companies in the study

revealed that existing information in cash flow statement ratios leads to a

substantial increase in correlation among the rations of income statement and

balance sheet with stock returns. But there is a weaker correlation among the cash

flows ratios comparing with ratios of income statement and balance sheet in stock

returns.

Farshadfar (1999) studies the association of accrual earnings and operating cash

flows with stock returns. The researcher analyzed the data via the statistical linear

regression method per year and mean of 5 years. He deduced that there is not any

meaningful liner relationship between operating cash flows, operating accrual

earnings with stock returns.

Shahmoradi (2002) examined the association between accounting earnings and

stock returns in firm listed in Tehran stock exchange. He analyzed the data via

person correlation and simple regression method. The study revealed that there is a

meaningful relationship among net profit, operating earnings with stock returns.

Ashitiani (2005), studies the relationship between accounting rations, operating

cash flows, investments, financing and stock returns in Tehran Stock Exchange.

The researcher used the Pearson correlation and simple liner regression to analyse

the data of a sample of 650 listed companies for the years 1998 to 2004. the results

38
showed that there is a meaningful relationship among the growing of operating

earnings, growing of net profit, operating cash flows, investing cash flows with

stock returns; but there is no meaningful relationship among the growing of trade

sale, financing cash flows and stock return.

Khoshdel (2006), studied the relationship between free cash flows and operating

earning with stock returns and growth of net market values of operating assets in

Tehran Stock Exchange. The researcher tests the hypotheses via Pearson

correlation and simple linear regression method. The study revealed that there is a

positive meaningful relationship between operating earning with return on equity,

return on assets, and growing of net market values in operating assets.

Watson (2005), examined the associated of various earnings and cash flow

measures of firm performance and stock returns. The researcher used simple and

multiple regressions to analysis the data. The study revealed that cash flow and

firm performance have a significant negative relationship. Thus a company, whose

performance is acceptable according to managements and shareholders opinion,

may not be acceptable in social aspect.

Framework for the Preparation and Presentation of Financial Statement The

objective of financial statement is to provide a fair presentation (information),

financial performance (income statement) and the financial position (balance sheet)

39
of an entity. This information should be useful for making economic decisions by

the users of the financial statements, who cannot dictate the information they

should be getting (Van 2009). Financial statements also show the result of

Management’s stewardship of the resources entrusted to it. This information, along

with other information in the notes to the financial statement, assist users of

financial statements in predicting the entity’s future cash flows and, in particular,

their timing and certainty. To meet this objective, financial statements provide

information about an entity’s assets, liabilities, equity, income and expenses

including gains and losses; contributions by and distributions to owners in their

capacity as owners; and cash flows. Banks and other Financial Institution Act

(BOFIA, 1991) and Companies and Allied Matters Act (CAMA) Section 360 of

1990 required every entity to prepare its financial statements at the end of each

accounting year. Stakeholders and users of financial statement will use this

information for decision making. Section 7 of the International Financial Reporting

Standard, (IFRS7) required the preparation of cash-flow statement by entities. The

cash-flow statement is separate financial statement that provides entity. Cash-flow

is also relevant for identifying:

 Movement in cash balances for the period

 Timing and certainty of cash-flows

 Ability of the entity to generate cash and cash equivalents and

40
 Prediction of future cash-flows (useful for valuation models).

Scope of the standard: All entities are required to present a cash flow statement

that reports cash flows during the reporting period. Either the direct or the indirect

method of reporting can be used. Cash and cash equivalents must be defined. Cash

flows must be classified as follows;

 Operating activities

 Investing activities

 Financing activities

Key concepts: Cash flows are inflows and outflows of cash and cash equivalents.

Cash comprises of cash on hand, and demand deposit (net of bank overdrafts

repayable on demand) Cash equivalents are short-term. Highly liquid investment

(such as short term debt securities), that readily convert to cash and that are subject

to an insignificant risk of changes in value. Operating activities are principal

revenue-producing activities and other activities that do not include investing or

financing activities. Investing activities are acquisition and disposal of long term

assets and other investments not included as cash-equivalent investments.

Financing activities are activities that change the size and composition of the

equity capital and borrowings.

41
 CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Introduction

This section covers the research methodology which was presented in the

following order research design, population of the study, sample design, data

collection and data analysis.

3.2 Research Design

This study adopted a descriptive survey that aimed at analyzing the effect of cash

flow accounting on the profitability of Insurance firms listed at the NSE.

Descriptive research, also known as statistical research describes data and

characteristics about population or phenomenon being studied. Singh & Nath

(2010), a descriptive survey was used to obtain information concerning the current

status of the phenomena to describe with respect to variables or conditions in a

situation. The methods involved ranged from the survey which described the

relationship between the variables.

In this study, ex-post facto research design was adopted in obtaining, analyzing

and interpreting data relating to the objectives of the study.

42
3.3 Population of the Study

Mugenda and Mugenda (2003) describe target population as the complete set of

individual’s cases or objects that are being investigated. The population consisted

of twenty two (22) insurance companies listed at the NSE as at October 2017.

3.4 Sample

A stratified sampling method was used to pick a sample of four (4)

Insurance companies listed at NSE.

3.5 Data Collection

Secondary data was extracted from audited annual reports and financial statements

of firms sourced from NSE and for a period of four years (2013-2016).The annual

financial statements included: the statement of comprehensive income, the

statement of financial position and the statement of cash flows.

3.5.1. Secondary Sources

These sources where in the form of firm’s records. Information from the financial

statements of the firms where used in the process of this research. Also, materials

such as dissertations, journals, newspapers and other related texts were used to get

relevant data needed to carry out this research.

43
In this research work, explanatory study was done using secondary data. It was

used to help in the pointing out of specific elements within the general research

problem. The explanatory research method is used for the identification of specific

elements in the variables under study. (Ivance-vic et al, 1977:370).

3.5.2. Operational Measurement of Variables

In the hypothesis, the dependent variable; financial performance could be

measured by obtaining the financial statements of the quoted Insurance companies

in order to get their Turnover and Working Capital which will be analyzed using

statistical tools. The independent variable which is Cash Flow Accounting will be

measured using Operating Activities and Financing Activities, which is stated in

the audited financial reports of the firm.

3.6 Data Analysis

Data was sorted, cleaned and coded then entered into statistical package for social

science (SPSS). Data was analyzed using a regression model since the nature of the

data was quantitative. Data was collected from financial statements and published

accounts.

Turnover in the case of insurance companies which is net premium was obtained

from income statement. While working capital which is current asset Less current

liabilities was obtained from the statement of financial position (balance sheet)

44
Operating activities and Financing activities figures were obtained from the

statement of cash flows of each companies audited financial reports.

3.6.1 Model Specification

The following models were stated to guide the test of the hypotheses.

Y = β0 + β1OA +β2FA+ℇ.

Where,

Y= Cash Flow Accounting

β0 = Constant.

β1OA= Operating Activities.

β2R = Financing Activities.

ℇ = error term.

β1OA = Coefficient of Operating Activities.

β2FA= Coefficient of Financing Activities.

ℇ= Error Term.

Therefore, the model adopted for this study is

Y = β0 + β1OA+β2FA+ℇ.

45
 CHAPTER FOUR

DATA PRESENTATION ANALYSIS AND INTERPRETATION

4.1. Introduction

This chapter focuses on the presentation of the collected data through a descriptive

statistic of all variable under consideration. We then conduct a multiple linear

regression analysis of the variables. This intends to reveal if there is any significant

relationship between them and to test the hypothesis earlier established.

Table 4.1: Data Collected

Summary of Data collected is shown below:

Dependent Independent
(2013-2016) TURN WORKING OA(₦ FA (₦ million)
OVER CAPITAL million)
Nem Insurance Plc. 37,316 24,161,979 1342238.3 -243,428.75
779
Law Union & Rock Plc. 10,821, 17,853,014 391,297.75
134
Aiico Insurance Plc. 66,055, 40,637,174 8,090,317.25 -573,394
462
Wapic Insurance Plc. 8,691,0 58,545,837 98,295 566,434.75
86

46
4.2. Data Presentation

The table below is a presentation of the data collected across four companies which

includes Nem Insurance Plc, Law Union and Rock Plc, Aiico Insurance Plc and

Wapic Insurance Plc. The table 4.2. shows the mean, minimum, maximum and

standard deviation of the values. Operating Activities showed a minimum value of

98295.00 while having a maximum value of 8090317.25 while the mean value was

2480537.0750 with the standard deviation of 3777360.45293 which is how far the

average value is from the mean value. Financing Activities showed a minimum

value of -573394.00 while having a maximum value of 566434.75 while the mean

value was -83462.6667 with the standard deviation of 586510.23494 which is how

far the average value is from the mean value. Turnover showed a minimum value

of 8691086.00 while having a maximum value of 66055462.00 while the mean

value was 30721115.2500 with the standard deviation of 26915610.60710.

Working Capital showed a minimum value of 17853014.00 while having a

maximum value of 58545837.00 while the mean value was 35299501.0000 with

the standard deviation of 18232820.18249.

47
Table 4.2. Descriptive Statistics for Selected Variables

Descriptive Statistics

N Minimu Maximu Mean Std.

m m Deviation

8090317. 2480537. 3777360.

OA 4 98295.00
25 0750 45293

- -
566434.7 586510.2
FA 3 573394.0 83462.66
5 3494
0 67

8691086. 6605546 30721115 26915610

Turnover 4
00 2.00 .2500 .60710

Workingca 1785301 5854583 35299501 18232820

4
pital 4.00 7.00 .0000 .18249

Valid N
3
(listwise)

48
4.3. Data Analysis

The output table provides Pearson correlations between each pair of variables and

associated significance tests.

4.3.1. To what extent does operating activities influence the turnover of quoted

insurance companies in Nigeria?

The model summary table shows that the R-value is .934a which indicates a high

degree of correlation. The R-square value which indicates how much of the total

variation in the dependent variable, Turnover, can be explained by the independent

variable, Operating Activities, In this case, 87.2% is also high.

Model Summary

Mode R R Square Adjusted R Std. Error of

l Square the Estimate

1657305.862
a
1 .934 .872 .808
90

a. Predictors: (Constant), Turnover

49
4.3.2. To what extent can operating activities influence working capital?

The model summary table shows that the R-value is .115a which indicates a very

low degree of correlation. The R-square value which indicates how much of the

total variation in the dependent variable, Working Capital, can be explained by the

independent variable, Operating Activities. In this case, 13% can be explained as

being rather low.

Model Summary

Mo R R Adjusted Std. Error

del Squar R Square of the

e Estimate

22183254
a
1 .115 .013 -.480
.46881

a. Predictors: (Constant), OA

50
4.3.3 To what extent can financial activities relate with working capital of quoted

insurance companies.

The model summary table shows that the R-value is .708 which indicates a very

high degree of correlation. The R-square value which indicates how much of the

total variation in the dependent variable, Working Capital, can be explained by the

independent variable, Financing Activities. In this case, 50.1% can be explained as

being rather moderate.

Model Summary

Mo R R Adjusted Std. Error

del Squar R Square of the

e Estimate

17184508
a
1 .708 .501 .001
.09961

a. Predictors: (Constant), FA

51
4.3.4. To what extent can financial activities relate with turnover of quoted

insurance companies in Nigeria.

The model summary table shows that the R-value is .971 which indicates a very

high degree of correlation. The R-square value which indicates how much of the

total variation in the dependent variable, Turnover, can be explained by the

independent variable, Financing Activities. In this case, 94.4% can be explained as

being very high also.

Model Summary

Mo R R Adjusted Std. Error

del Squar R Square of the

e Estimate

9625809.
a
1 .971 .944 .887
14511

a. Predictors: (Constant), FA

52
4.4. Test of Hypothesis

For this study, four hypotheses were formulated for empirical investigation and

validation. Pearson Product Moment Correlation Method. The decision rule

includes the following.

Rejection Rule:

p-value approach: Reject H 0 if p-value ≤ α

Accept H 0 if p-value ≥ α

4.4.1. Operating activities do not have significant influence on Turnover of quoted

Insurance companies in Nigeria.

53
 Coefficientsa

Model Unstandardized Standardi t Sig.

Coefficients zed

Coefficie

nts

B Std. Beta

Error

-
(Const 1370917. -
1544747. .377
ant) 960 1.127
1 190

Turnov
.131 .036 .934 3.686 .066
er

a. Dependent Variable: OA

Decision

Since p = .066 we accept the null hypothesis and reject the alternative

hypothesis.

4.4.2. There is no relationship between Operating activities and working capital of

quoted Insurance companies in Nigeria

54
 Coefficientsa

Model Unstandardized Standardi T Sig.

Coefficients zed

Coefficie

nts

B Std. Error Beta

(Const 33926539 13919796

2.437 .135
1 ant) .821 .746

OA .553 3.391 .115 .163 .885

a. Dependent Variable: Working capital

Decision

Since p = .885 we accept the null hypothesis and reject the alternative

hypothesis.

4.4.3. Financial activities do not have significant influence on turnover of quoted

Insurance companies in Nigeria

55
 Coefficientsa

Model Unstandardized Standardi T Sig.

Coefficients zed

Coefficie

nts

B Std. Error Beta

(Const 42846665 10071038

4.254 .147
1 ant) .590 .506

FA 20.748 20.718 .708 1.001 .500

a. Dependent Variable: Workingcapital

Decision

Since p = .500 we accept the null hypothesis and reject the alternative

hypothesis.

4.3.4. There is no significant relationship between financial activities and

working capital of quoted Insurance companies in Nigeria.

Coefficientsa

56
 Model Unstandardized Standardi t Sig.

Coefficients zed

Coefficie

nts

B Std. Beta

Error

(Const 33389445 5641237.

5.919 .107
ant) .118 677
1
-
FA -47.506 11.605 -.971 .153
4.094

a. Dependent Variable: Turnover

Decision

Since p = .153 we accept the null hypothesis and reject the alternative

hypothesis.

4.5. Discussion of Findings

57
Hypothesis test one stated that there is no significant relationship between

Operating Activities and Turnover of quoted Insurance companies

Hypothesis test two stated that there is no significant relationship between

Operating Activities and working capital of quoted Insurance companies.

Hypothesis test three stated that there is no significant relationship between

Financing Activities and working capital of quoted insurance firms.

Hypothesis test four stated that there is no significant relationship between

Financing activities and Turnover of quoted insurance companies.

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.0. Introduction

58
In this chapter, we will provide a summary and discussion of our findings, and

draw conclusions as well as make recommendations for possible future research.

5.1. Summary of Findings

The Overall results suggest that cash flow accounting factors (operating activities,

and Financing activities) constrain the likelihood of financial performance of

quoted insurance companies in Nigeria.

1. There is no significant relationship between Operating Activities and

Turnover of quoted Insurance companies

2. There is no significant relationship between Operating Activities and

working capital of quoted Insurance companies.

3. There is no significant relationship between Financing Activities and

working capital of quoted insurance firms.

4. There is no significant relationship between Financing activities and

Turnover of quoted insurance companies .

5.2. Conclusion

Using the method as described in chapter three to analyze the questions and a test

into the hypothesis provided by both the conceptual and theoretical framework in

prior chapters, the researcher discovers that while there tends to be a strong

positive relationship between Cashflow activities and financial performance of

59
quoted insurance companies although none of the examined relationships proved

significant.

5.3. Recommendations

Based on our findings, and conclusions above, we make the following

recommendations:

1. Corporate Financial managers should appropriately blend their Cash flow

activities to earn sufficient profitability without scarifying liquidity.

2. Accountants and standard setters of corporate insurance companies should

enhance the quality of earnings because it usually attracts attention of

investors.

3. Regulatory authorities such as IFRSB, FRCN, CBN, NSE, SEC, NDIC, etc.

should encourage external auditors of quoted Insurance companies to use

cash flow ratios in evaluating the performance of a company before forming

an independent opinion on the financial statement. This will give detailed

information on the company to enable investors make rational investment

decision.

4. Policy makers should implement more stringent rules to enhance the value

relevance of financial information. This will compel diligence,

60
 accountability and responsibility in preparation and application of

accounting standards. This in turn will increase investors’ confidence in

Nigerian Stock Exchange (NSE).

5. The cashflow accounting data can also be useful in identifying manipulation

of cash, by comparing the components of operating cash flow it will give

further insight on the relationship between profitability and cash flow

activities.

6. This study also recommends further investigations into the relationship

between cash flow accounting and financial performance, Using Larger

sample size, covering more years, and including other assurance companies

to.

5.3.1. Suggestions for Further Research

This study considered the influence of cash flow accounting and financial

performance of quoted insurance companies. Future research may be carried out to

investigate the influence of cash flow accounting and financial performance of

unquoted insurance companies in Nigeria covering more years to checkmate.

61
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