000041377 THE CORRELATION AND LINEAR REGRESSION OF CASH FLOW FROM OPERATING ACTIVITIES AND EARNINGS FOR MANUFACTURING AND TRADING ENTERPRISES LISTED ON VIETNAMESE STOCK EXCHANGE (Tương quan và hồi quy tuyến tính của dòng tiền từ hoạt động kinh doanh và lợi nhuận của các doanh nghiệp sản xuất, thương mại niêm yết trên Sở giao dịch chứng khoán Việt Nam) THE ROLE OF CASH FLOW STATEMENT IN BUSINESSES OPERATING IN VIETNAM AND THE CORRELATION AND LINEAR REGRESSION OF CASH FLOW FROM OPERATING ACTIVITIES AND EARNINGS FOR MANUFACTURING AND T
Operating cash flow to current liabilities ratio
The operating cash flow ratio measures whether a company’s cash flow from operations is sufficient to cover its current liabilities, indicating short-term liquidity When this ratio falls below 1, the company is not generating enough cash from its core operations to meet its near-term obligations, which may require securing external funding or slowing the pace of cash outflows While any available cash balance can help in the short term, it is not a lasting solution since cash reserves will eventually be depleted A ratio below one signals that the company has generated less cash in the period than the amount needed to extinguish its current liabilities, highlighting risk to ongoing operations unless corrective steps are taken.
Graduation Thesis — Nov 2008 itneeds to pay off short term liabilities as at the year end This may signalize a need to raise money to meet liabilities (Phil Weiss, 2000, pp.! )
An empirical study of the operating cash flow to current liabilities ratio finds that a value of 0.4 or higher is common among financially healthy manufacturing and retail firms (C Casey & N Bartzcak, 1984, pp 61–66) This threshold serves as a practical liquidity benchmark for assessing the financial health of firms in these sectors.
Short-term liquidity is effectively measured by the operating cash flow (OCF) ratio; using cash flow rather than net income can offer a clearer picture of liquidity since cash is what pays the bills In a study of 30 companies listed on the Vietnamese stock exchange, about 40% of the manufacturing and trading firms have an OCF to current liabilities ratio at year-end 2006 and 2007 that meets or exceeds the 0.4 benchmark, with 2006 exactly 0.4 and 2007 above it.
Figures 1: Percentage of enterprises above and equal benchmark of operating cash flow to current liabilities
The chart shows a clear downward trend in the share of companies with a ratio at or above the 0.4 benchmark from 2006 to 2007 This decline occurs because fewer enterprises meet or exceed the 0.4 threshold, indicating tighter performance standards across the sector This shift implies a smaller pool of firms operating above the benchmark, reflecting a moderation in overall performance and a tightening competitive landscape.
More than half of manufacturing and trading listed companies on the Vietnamese stock exchange fail to generate enough operating cash to cover their current liabilities, revealing an emerging short-term liquidity risk facing these firms and their investors over time The detailed ratio calculations for each company are provided in Appendix 4 at the end of the paper.
Figures 2: Operating Cash Flow to Current Liabilities of thirty manufacturing and trading listed businesses over the year 2006 & 2007
Operating cash flow to total liabilities ratio -ô -s
Cash flow to debt ratio assesses a company's ability to satisfy its debts and serves as a useful predictor of bankruptcy risk It is calculated by dividing cash flow from operations by total liabilities, revealing how well operating cash flow covers the company’s obligations.
This ratio of 0.2 or more is common for a financially healthy company (C Casey &
Based on the benchmark, the ratio for the thirty companies in the sample has been computed to examine the trend of the entire dataset over the two-year period ending in 2006 (2005–2006) This calculation enables a consistent comparison across firms and time, highlighting how the sample's trajectory aligns with or diverges from the benchmark during that period.
Figures 3: Percentage of enterprises above and equal benchmark of operating cash flow to total liabilities mark Above & equal benchmark’
The chart shows that the share of businesses with a cash-flow-to-liabilities ratio at or above 0.2 declined from 63% in 2007 to 47% in 2006, indicating a drop in cash-flow adequacy over the period Consequently, roughly half of the 30-firm sample faced the risk that operating cash flow would be insufficient to cover their total liabilities, signaling potential liquidity risk for these firms.
Only eleven of the thirty firms in the sample improved the ratio from 2006 to 2007, while the remaining nineteen firms—representing 63% of the total ratio—experienced a decline over the two-year period Detailed calculations of this ratio are provided in Appendix 4 of the paper.
Figures 4: Operating Cash Flow to Total Liabilities of thirty manufacturing and trading listed businesses over the year 2006 & 2007
Operating Cash Flow to Total Liabilities mms 2007
Operating cash flow to capital Expenditures ratio AO
This ratio measures a company's ability to fund the maintenance and replacement of its plant and equipment from cash generated by operations, rather than through borrowing or issuing new equity It is calculated by dividing cash flow from operations by expenditures for plant and equipment, also known as capital expenditures, highlighting how much of operating cash covers capital investments.
Essentially, this ratio signals a company's long-term solvency by illustrating its ability to service debt However, it does not explicitly account for future debt levels the firm will need to repay, so while it reveals current debt-servicing capacity, it may overlook upcoming obligations that could affect future financial stability.
This analysis assesses the condition of Vietnam’s manufacturing and trading listed companies with respect to the specified ratio Calculations were performed for the sample enterprises across the three years 2005, 2006, and 2007, and the results are shown in the chart below.
Figures 5: Percentage of enterprises above and equal benchmark of operating cash flow to capital expenditures
Benchmark Comparison of OCF/CE
According to the chart, the share of enterprises with a ratio at or above the benchmark of 1.0 declined from 2005 to 2007, indicating that cash flow from operating activities was not sufficient to cover their capital needs As a result, firms have to raise capital from external sources, either equity or debt financing Typically, long-term loans are used to finance this cash demand for purchases of fixed assets or construction projects In Vietnam, however, listed companies have relied more on equity financing—issuing additional shares—than on debt financing, driven by government monetary tightening and the favorable fundraising environment in 2006–2007.
Discussion on the findings: In overall, through the cash flow ratios
Among the three liquidity ratios, the OCF-to-current-liabilities ratio is the only one showing an upward trend over time, with more enterprises achieving or exceeding the chosen benchmark The other two ratios, however, display a decreasing trend, with less than 50% of the thirty listed companies meeting their respective benchmarks.
Graduation Thesis (November 2008) summarizes findings on whether the listed companies in the sample can generate sufficient operating cash flow from their manufacturing and trading activities to cover current liabilities, total liabilities, and capital expenditures The results provide implications and generalizations about the firms’ ability to generate cash from operations to meet these financial obligations.
3 Findings from data correlation and regression model running
After applying the methodology for the data of this paper, we found that:
The correlation of couple measures between the three variables including the operating cash flow (OCF), earning before interest and tax (EBIT), and earning before tax (EBT) have been done for both quarterly and yearly basis balances The results are as below:
> The correlation between EBT and OCF and between EBIT and OCF are run and found out to be positively high for the year-end balances over the three years
Table 1: Correlations between the operating cash flow to EBIT/EBT on yearly basis and level rating
Correlation between CFO and other measures
Level rating positive & high Positive & high | positive & high
> Different from the above findings, as can be seen from the table below that the correlations for the quarterly based balances of the measures are drawn out to be varied with unexpected results as followings:
In the first and second quarters of 2007, the correlations between EBT and OCF and between EBIT and OCF were strongly positive, with coefficients approaching a high value In contrast, the correlations for the third and fourth quarters were low and negative, indicating a weaker or inverse relationship in the latter part of the year.
Y At last the correlation of the two first quarter of the year 2008 is also found out to be positive but the correlation result is significantly low
Table 2: Correlations between the operating cash flow to EBIT/EBT on quarterly basis
Correlation between CFO and other measures
Correlation between EBT and OCF 0.934 0.778 -0.285 -0.351 0.237 0.427
Positive & | Positive & | Negative & | Negative & | Positive & | Positive &
Based on the tables, the correlation of the quarterly measures varies across the six quarters and lacks consistency, while the year-end figures over the three-year period demonstrate a consistent relationship.
Overall, the correlation analysis shows that, consistent with the stated hypothesis, the findings partially support it In thirty manufacturing and trading firms, the correlations between operating cash flow (OCF) and earnings before interest and taxes (EBIT), as well as between OCF and earnings before taxes (EBT), are strongly positive for year-end balances, although some inconsistent results were observed.
Graduation Thesis — Nov 2008 happen for quarterly figures The discussion of these findings are done as the following section
In addition to the correlation analysis for the measures described above, this thesis also runs a regression model that includes the same measures, along with operating cash flow (OCF) and the market capitalization of the corresponding company shares for the firms in the selected sample The regression results yield several precise findings, detailing the nature and strength of the relationships among the analyzed measures, OCF, and market capitalization across the sampled companies.
The regression model for pairs of measures across year-end and quarterly balances for the three metrics EBT, EBIT, and OCF has shown inconsistent results, as illustrated in the following tables.
Table 3: Regression model for quarterly and yearly balance of EBT and OCF
No Regression Results Adjusted R square t statistic it Regression bet EBT & OCF 1/07 86.85% 13.878
5 Regression bet EBT & OCF of total 07 33.28% 3.932
6 Regression bet EBT & OCF of total 06 86.73% 13.804
7 Regression bet EBT & OCF of total 05 90.23% 16.397
Table 4: Regression model for quarterly and yearly balance of EBIT and OCF
No Regression Results square t statistic
5 Regression bet EBIT & OCF total 07 33.24% 0.088
6 Regression bet EBIT & OCF total 06 87.09% 14.020
7 Regression bet EBIT & OCF total 05 91.08% 17.232
From the regression results for the simple two-variable models, the goodness of fit is assessed by how well variations in operating cash flow (OCF) are explained by variations in earnings before tax (EBT) and by earnings before interest and taxes (EBIT) The evaluation relies on two criteria: the coefficient of determination (R-squared), which indicates the percentage of OCF variation explained by the predictor, and the t-statistic, which should exceed approximately two to indicate statistical significance The results show that the two models produce differing levels of fit across data subsets, with R-squared and t-statistics varying between the EBT-based and EBIT-based specifications, and some datasets revealing stronger explanatory power for one specification over the other.
Linear regression analyses of the year-end balances for two measures—EBT with OCF and EBIT with OCF—over 2005 and 2006 indicate a high degree of explanatory power, with approximately 90% of the variation in OCF explained by these two measures A direct comparison of the EBT-OCF and EBIT-OCF models shows that EBIT provides a stronger explanation of OCF than EBT.
Linear regression for 2007 yields different results from the two preceding years, with R² about 0.32 and absolute t-statistics for EBIT and EBT around 2 This indicates that the ending balances of EBIT and EBT in 2007 did not adequately explain the variation in the corresponding operating cash flow (OCF).
Quarterly linear regression analysis over the two-year period 2007–2008 reveals inconsistent results for both EBT and EBIT, a finding that aligns with the correlation analysis which shows that quarterly data do not reflect the true relationships and should not be used for evaluation or analysis.
Graduation Thesis — Nov 2008 vy Research Limitations
This study reflects substantial research effort and delivers significant findings and implications for the chosen topic As a graduation thesis, the work demonstrates notable strengths and contributions, yet the limited timeframe introduces unavoidable limitations These constraints arise from both subjective factors, such as interpretation and perspective, and objective factors, including data availability and methodological boundaries.
Limitations of this accounting survey include its small sample size of fifty respondents, which increases the risk of human-factor bias Respondents’ beliefs, willingness, and honesty can significantly influence their answers and thus shape the study findings Additionally, some participants may not take the questionnaire seriously, answering based on what they think or know rather than reflecting their actual professional practices, potentially distorting the true picture of accounting behavior.
Implications of findings - << sưng xxx 47 1 Implication from the SUFV€y 5c c*rtterrrrererkrrrerrrerrrrrrrrrrrkrrree 47 2 Implications on the empirical correlation and regression model
Implications for Vietnam in the integration prOC€ss
As Vietnam integrates further into the global economy, the market's professionalisation is advancing in many areas, with information disclosure a key pillar Market information, particularly data on the financial performance and position of enterprises, matters for professional investors' decisions, so the quality and reliability of this information must be high In accordance with the regulations governing stock exchange operations, financial information must be disclosed both quarterly and annually, yet quarterly disclosures are still not sufficiently reliable for investors In addition, the relationships between EBT and OCF and between EBIT and OCF on a quarterly basis are inconsistent when compared with annual figures.
Quarterly earnings data for manufacturing and trading firms do not reliably reflect the cash position from operating activities—the short-term liquidity provided by cash and cash equivalents needed to sustain operations Consequently, investors should not use quarterly earnings as a reference for cash flow from operations Year-end financial reports, by contrast, are more reliable because they are audited, and earnings are highly positively correlated with cash flow from operations for those listed companies From year-end figures such as EBIT (earnings before interest and taxes) and EBT (earnings before tax), both investors and managers can connect these measures for decision making and use an earnings-based model as an alternative evaluation method for firms in manufacturing and trading industries In particular, EBIT and EBT are often more informative than cash flow information alone.
An important strength of this study is its applied focus on Vietnamese businesses, which enables an assessment of how EBT and EBIT explain operating cash flow (OCF) The analysis employs correlation and simple two-variable regression on the paired measures at the specified time points, as described in the hypothesis section, to reveal the relationships between earnings metrics and OCF.
Based on the limitations existing in this study, it can be generated from this paper a lot of opportunities for the future research which states below:
This study relies on historical data for correlation analysis and regression modeling, which limits the generalizability of its findings to the observed time period This constraint is inherent because the implications apply to the data as of the collection date An opportunity arises, however, to extend the analysis with cash-flow projections and other forward-looking measures Although cash-flow projection models have been developed, there is currently no research using projected information to test the study’s hypotheses.
Due to time constraints in this study, some cash flow metrics and other key financial measures could not be analyzed Future research should address these gaps and develop more robust models to yield more significant implications and actionable insights for users.
Due to information constraints, the study analyzed a sample of only thirty manufacturing and trading listed enterprises While a larger sample generally yields more accurate results, the development of Vietnam’s stock market in the future is expected to give researchers more options and companies to sample, with improved data availability and precision This also implies that future studies can broaden across industries beyond manufacturing and trading, including banking, financial institutions, and construction, providing richer data for analysis Findings from such expanded research would be valuable for forward-looking analyses of Vietnam’s market.
The adage 'cash is king' still holds: even thriving companies can fail due to unhealthy cash flows Relying on the balance sheet alone for liquidity analysis is misleading because it captures only a moment in time, while the income statement includes non-cash allocations, accounting conventions, accruals, and reserves that mask a company’s true cash position As a result, the global accounting landscape has increasingly adopted the cash flow statement to better assess liquidity Building on prior studies of cash flow usage, preferences, and the relationship between cash flow statements—especially cash flow from operations—this paper has three core goals: to survey fifty accountants working with Vietnamese businesses, to compute and analyze cash flow ratios, and to develop a correlation and regression model using a sample of thirty enterprises listed on the Vietnamese stock exchange.
The detail findings from each section have been discussed in the above sections, however; the general outcomes can be summarized as follows:
The survey shows a wide variation in how CFS is prepared and used across different types of businesses It identifies three main drivers: regulatory requirements from the Ministry of Finance, limited accounting expertise and knowledge, and diverse demand for CFS among different business setups Together, these factors explain the differing practices around CFS across industries and company sizes.
Over several years, cash flow analysis was performed on 30 manufacturing and trading listed companies by computing key ratios such as operating cash flow (OCF) to current liabilities, OCF to total liabilities, and OCF to capital expenditures The resulting overview merges detailed ratio analysis with benchmark comparisons to reveal how each firm translates operating cash flow into the ability to meet obligations, manage leverage, and fund capital investments This integrated view uncovers trends in cash flow quality, liquidity risk, and investment capacity across the cohort, helping identify leaders and areas for improvement relative to the sector benchmark.
Graduation Thesis (Nov 2008) notes an almost downward trend in the number of manufacturing and trading enterprises listed on the Vietnamese stock exchange whose liquidity and solvency ratios are equal to or above the benchmark This finding provides the basis for evaluating liquidity and solvency risks in Vietnamese-listed manufacturing and trading firms In conclusion, the study shows a decreasing trend over the years in the number of companies whose ratios meet or exceed the benchmark across the two ratio categories mentioned above.
In the final section, we perform correlation analysis and regression across three measures—EBT, EBIT, and OCF The findings show that only the year-end balances of EBIT and EBT have a strong positive correlation with OCF, while the quarterly correlations are inconsistent This implies a lag between earnings balances and cash flow, with EBIT offering a better explanation of the year-end OCF than EBT Consequently, the paper suggests EBIT or EBT as viable alternatives for firm evaluation in addition to the discounted cash flow method.
This thesis comprises three core components: first, it investigates the facts and practices related to the preparation and use of cash flow statements (CFS); second, it conducts risk analysis for the sample businesses using three cash flow ratios; and third, it applies correlation analysis and regression modeling to quantify the strength of the linear relationship and to explain operating cash flow (OCF) by the balances of earnings before tax (EBT) and earnings before interest and taxes (EBIT).
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Please share the article text or the specific section you want rewritten I’ll turn it into a concise, SEO-optimized paragraph that preserves the meaning.
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