The role of financial indicators derived from the statement of cash flows and the accrual basis in assessing bank liquidity: An applied study in a sample of commercial banks listed on the Iraqi Stock Exchange

Abstract

The research aims to explain the importance of financial indicators derived from the statement of cash flows that banks prepare to identify the actual and real reality of the bank’s liquidity and the extent of its ability to fulfill its obligations from internal sources without resorting to external sources such as borrowing and the like. Financial indicators derived according to the accrual basis and represented by liquidity and profitability indicators are important financial analysis tools that provide detailed information about the sources and uses of funds. This information cannot be obtained if the financial indicators derived from the income and financial position statements only, which are prepared on the accrual basis, and banks used them previously, because that basis alone is not sufficient to provide comprehensive and accurate indicators to evaluate the financial position of the bank, especially when it comes to the ability to repay and thus the ability to continue the activity. Therefore, this research seeks to make a comparison between the results of evaluating liquidity based on the indicators derived from the statement of cash flows with those derived from the income and financial position statements. To determine the dimensions of the difference or correlation between them and the possibility of adopting integration between the two in order to reach more accurate and objective results. To achieve the research objectives, the researchers adopted the descriptive approach as a basis to complete the theoretical side of the research. While to accomplish the practical side, the researchers relied on financial data obtained from the annual financial reports of a sample consisting of five commercial banks listed on the Iraqi Stock Exchange for a period of ten years from (2013-2022). Which was used to calculate liquidity indicators based on the accrual basis on the one hand and the cash basis on the other hand, as they were analyzed in a way that achieves the objectives of the research and helps in testing its hypotheses. The research concluded with a set of results, the most important of which is that there are no indicators specific to a specific list that can be considered ideal and comprehensive for all purposes of analyzing and evaluating banking liquidity, which consequently imposes a commitment to joint integration of all indicators derived from the financial statements, regardless of the accounting bases used in their preparation. The research recommended the necessity of using indicators. The financial indicators derived from the statement of cash flows, in addition to the financial indicators derived from the financial statements prepared on an accrual basis, to evaluate the liquidity of the banks in the research sample, in a way that the results of the analysis complement each other.