A Primary Rule for Detecting Bankruptcy: Watch the Cash

The release of the Financial Accounting Standards Board’s exposure draft on “Statement of Cash Flows” has made cash-watching an even more popular sport. Now the financial analyst can choose among operating, investment, and financial cash flows, as well as the traditional accrual-based and funds-based liquidity ratios. With all these so-called liquidity measures, the question is, which should the analyst use? In this research paper, we cover the primary rules for detecting bankruptcy.