The Study On Financial Crisis Early-warning System Based On Cash Flow

Financial crisis early-warning system (or corporate failure prediction), according to companies' financial reports, financial ratios or models applied, through statistical methods, analyses companies' ability of repaying debts and payoff, so it predicts probability of companies' financial deficit. To establish a financial crisis early-warning system is an effective way to prevent and control financial failures. It had been known in foreign and Chinese scholars.This article studies on the theories about financial crisis prediction. Based on some hypotheses such as the efficiency and prediction of accounting data, we discuss foundations of these hypotheses from positive accounting theory, which have got development in the last century. The conclusion is that financial statement can sufficiently reflect the characteristics of failed corporations.After comparative analyses of several models, such as the Besiver's model and Altman's ZATE model, etc., we establish a new financial crisis early-warning system, which is based on cash flows. It describes companies' ability of repaying debt, turnover, payoff and payment. The comprehensive indicator is also been established.At last, this article workouts critical values of auto trade, and prediction result of K corporation. Cash is blood of companies' body. It is a crucial factor in company control that managers and inventors focus on. The reason of many companies' failure is the lack of cash. There is much realistic meaning in the study of financial crisis early-warning system based on cash flow.