Cash Flow Fixing: A New Approach to Economic Downturn (Small and Medium Size Enterprises)
International Journal of Current Research and Academic Review, ISSN: 2347-3215 Volume 2 Number 7 (July-2014) pp. 271-290
21 Pages Posted: 5 Jun 2014 Last revised: 21 Nov 2014
Date Written: July 28, 2014
This paper develops a simple model in predicting the possibility of SME operating on a going-concern basis during economic downturn, just by observing the components that constitute the cash flow information. Thus, SME can stay in business during economic downturn by increasing their operating sales and minimizing their operating expense and interest paid which makes it better off than winding down. The resulting model captures cash flow surplus as a reason for SME operating on a going-concern basis, though fixed cost is positive and large. Our statistical group are SME of all sectors in Spain and Galicia excluding financial sector. According to the considered situations for selecting samples, 269 firms were chosen for Spain and 50 firms for Galicia during the period of 2003 to 2012. The time-line of the study is essential because it helps us to determine the position of cash flow of SME in Galicia and Spain before the financial crisis. It further expands the proportion of inactive SME amongst the active SME that could not operate on a going-concern basis due to insufficient cash flow from 2003 to 2012. Research findings have shown that operating sales have a significant and positive relationship with cash flow while operating expenses have negative effect on cash flow across Spain and Galicia. Finally, interest enter model with a positive sign, increasing the relevance of operating expense forecasting the shortage of cash flow.
Keywords: SME, Economic downturn, cash flow, going-concern, operating sales, expense and interest
JEL Classification: G33, G34
Suggested Citation: Suggested Citation